GANNETT WELSH & KOTLER FUNDS, 497, 2000-02-10

GANNETT WELSH & KOTLER FUNDS
497, 2000-02-10

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PROSPECTUS
February 1, 2000

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

GW&K EQUITY FUND

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The GW&K EQUITY FUND (the "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 Fund is a series of The Gannett
Welsh & Kotler Funds (the "Trust").

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

This Prospectus sets forth concisely the information about the Fund that
you should know before investing. Please retain this Prospectus for future
reference.

TABLE OF CONTENTS
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Risk/Return Summary............................................................2
Expense Information............................................................5
How to Purchase Shares.........................................................5
Shareholder Services...........................................................7
How to Redeem Shares...........................................................8
Exchange Privilege.............................................................9
Dividends and Distributions....................................................9
Taxes.........................................................................10
Operation of the Fund.........................................................11
Distribution Plan.............................................................12
Calculation of Share Price....................................................12
Financial Highlights..........................................................15
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

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RISK/RETURN SUMMARY
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WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The 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 Fund's investment objective may be changed by the Board of
Trustees without shareholder approval, but only after notification has been
given to shareholders and after this Prospectus has been revised accordingly.

WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?

The Fund pursues flexible long-term investment policies emphasizing
companies with strong balance sheets and growth potential, i.e., companies which
are in industries or markets which are expanding or which have business lines
that demonstrate potential for growth in sales or earnings. These companies are
expected to have earnings and dividend growth the same as, or greater than, that
of comparable companies in similar industries. The Fund will also purchase
securities which the Adviser believes are undervalued or attractively valued.
The Adviser assesses value using measures such as price-to-earnings ratios and
ratios of market price to book value in comparison with similar measures for
companies included in the Standard & Poor's Index of 500 Common Stocks ("S&P 500
Index"). In addition to seeking capital growth, the Fund seeks to achieve growth
of income by investing in securities currently paying dividends. The Fund may
also buy securities that are not paying dividends but offer prospects for growth
of capital or future income.

The Adviser uses a bottom-up approach (focusing on specific companies
rather than the overall market level or industry sectors) in selecting
securities. The Fund intends to invest primarily in companies which are leaders
in their respective industries (i.e., leaders in sales, earnings, services
provided...etc.). However, the Fund may also invest in less well known
companies, such as companies not widely followed by investment analysts or
companies that are thinly traded. The Fund may invest in small, medium or large
capitalization companies.

The Adviser intends to assemble a portfolio of securities diversified as to
company and industry. The Adviser expects that each economic sector within the
S&P 500 Index will be represented in the Fund's portfolio. The Adviser will
consider increasing or reducing the Fund's investment in a particular industry
in view of the Fund's goal of achieving industry diversification. Various
factors may lead the Adviser to consider selling a security, such as a
significant change in the company's senior management or its products, a
deterioration in its fundamental characteristics, or if the Adviser believes the
security has become overvalued.

Under normal circumstances, at least 65% of the Fund's total assets will be
invested in the common stocks of domestic companies. When the Adviser believes
substantial price risks exist for common stocks because of uncertainties in the
investment outlook or when in the judgment of the Adviser it is otherwise
warranted in selling to manage the Fund's portfolio, the Fund may temporarily
hold for defensive purposes all or a portion of its assets in short-term
obligations such as bank debt instruments (certificates of deposit, bankers'
acceptances and time deposits), commercial paper rated

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A-3 or better by S&P or Prime-3 or better by Moody's, shares of money market
investment companies, U.S. Government obligations having a maturity of less than
one year or repurchase agreements. Investments by the Fund in shares of money
market investment companies may result in duplication of advisory,
administrative and distribution fees. When taking a temporary defensive
position, the Fund may not achieve its investment objective.

If, in addition to believing that substantial price risks exist for common
stocks, the Adviser believes that market indicators point to lower interest
rates, the Fund may, in seeking to achieve its investment objective, invest up
to 35% of its net assets in U.S. Government obligations of any maturity rated at
least investment grade. "U.S. Government obligations" include securities which
are issued or guaranteed by the United States Treasury, by various agencies of
the United States Government, and by various instrumentalities which have been
established or sponsored by the United States Government. U.S. Treasury
obligations are backed by the "full faith and credit" of the United States
Government. Some of the securities issued by U.S. Government agencies or
instrumentalities are supported by the full faith and credit of the United
States Government while others are supported only by the credit of the agency or
instrumentality, which may include the right of the issuer to borrow from the
United States Treasury.

WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?

MARKET RISK. The risk of losing money due to general market movements is
called market risk. The return on and value of an investment in the Fund will
fluctuate in response to stock market movements. Investments in equity
securities are subject to inherent market risks, such as a rapid increase or
decrease in value or liquidation, and the fluctuations due to a company's
earnings, economic conditions and other factors beyond the control of the
Adviser. As a result, there is a risk that you could lose money by investing in
the Fund.

INTEREST RATE RISK. U.S. Government obligations are subject to price
fluctuations based upon changes in the level of interest rates, which will
generally result in all those securities changing in price in the same way,
i.e., all those securities experiencing appreciation when interest rates decline
and depreciation when interest rates rise. Obligations with longer maturities
generally offer both higher yields and greater exposure to market fluctuations
from changes in interest rates. Consequently, to the extent the Fund is
significantly invested in obligations with longer maturities, there is a
possibility of greater fluctuation in the Fund's net asset value.

SMALL AND MEDIUM CAPITALIZATION SECURITY RISK. Small and medium
capitalization securities are more likely to experience higher price volatility
and may have limited liquidity. Small and medium-sized companies may have
limited product lines or financial resources, or may be dependent upon a
particular niche of the market or a smaller or more inexperienced management
group than larger companies. To the extent the Fund is invested in small and
medium capitalization securities, it will be exposed to these risks.

An investment in the Fund is not a deposit of a bank and it is not insured
or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.

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PERFORMANCE SUMMARY

The bar chart and performance table shown below provide an indication of
the risks of investing in the Fund by showing the changes in the performance of
the Fund from year to year since the Fund's inception and by showing how the
average annual returns of the Fund compare to those of a broad-based securities
market index. How the Fund has performed in the past is not necessarily an
indication of how the Fund will perform in the future.

[bar chart]

25.52% 17.68% 31.28%
1997 1998 1999

During the period shown in the bar chart, the highest return for a quarter was
24.53% during the quarter ended December 31, 1999 and the lowest return for a
quarter was -17.11% during the quarter ended September 31, 1998.

Average Annual Total Returns For Periods Ended December 31, 1999

Since Inception
One Year (December 10, 1996)
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The GW&K Equity Fund 31.28% 24.32%
Standard & Poor's
500 Index* 21.04% 25.99%
Russell 2000 Index** 21.25% 12.88%

* The Standard & Poor's 500 Index is an unmanaged index of 500 stocks, the
purpose of which is to portray the pattern of common stock price movement.
** The Russell 2000 Index, representing approximately 11% of the U.S. equity
market, is an unmanaged index comprised of the 2,000 smallest U.S.
domiciled publicly-traded common stocks in the Russell 3000 Index - an
unmanaged index of the 3,000 largest U.S. domiciled publicly-traded common
stocks by market capitalization representing approximately 98% of the U.S.
publicly-traded equity market.

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EXPENSE INFORMATION
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THIS TABLE DESCRIBES FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FUND.

SHAREHOLDER FEES (fees paid directly from your investment)

Maximum Sales Charge (Load) Imposed on Purchases.................. None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends ...... None
Redemption Fees................................................... None

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)

Management Fees .................................................. 1.00%
Distribution (12b-1) Fees ....................................... .01%
Other Expenses.................................................... .35%
-----
Total Annual Fund Operating Expenses ............................. 1.36%(A)
=====

(A) The Adviser has voluntarily agreed to waive management fees and/or
reimburse Fund expenses to the extent necessary to limit total Fund
operating expenses to 1.25% of the Fund's average daily net assets.
However, this arrangement may be terminated at any time at the option of
the Adviser.

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year, that all dividends and distributions were
reinvested, and that the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$138 $431 $745 $1,635

HOW TO PURCHASE SHARES
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Direct purchase orders received by the Transfer Agent by to the close of the
regular session on the New York Stock Exchange on any business day, generally
4:00 p.m., Eastern time, are confirmed at that day's net asset value. Direct
investments received by the Transfer Agent after 4:00 p.m., Eastern time, and
orders received from dealers after 5:00 p.m., Eastern time, are confirmed at the
net asset value next determined on the following business day.

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

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

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

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

You may also purchase shares of the Fund by bank wire. Please telephone the
Transfer Agent (Nationwide call toll-free 888-GWK-FUND (888-495-3863)) for
instructions. You should be prepared to provide, by mail or facsimile, a
completed, signed account application to the Fund.

Your investment will be made at the net asset value next determined after
your wire is received together with the account information indicated above. If
the Trust does not receive timely and complete account information, there may be
a delay in the investment of your money and any accrual of dividends. Your bank
may impose a charge for sending your wire. There is presently no fee for receipt
of wired funds, but the Transfer Agent reserves the right to charge shareholders
for this service upon 30 days' prior notice to shareholders.

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

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

Automatic Withdrawal Plan
-------------------------

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

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

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

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

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

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

You may make automatic monthly investments in the Fund from your bank,
savings and loan or other depository institution account on either the 15th or
the last business day of the month or both. The minimum initial and subsequent
investments must be $100 under the plan. The Transfer Agent pays the costs
associated with these transfers, but reserves the right, upon 30 days' written
notice, to make reasonable charges for this service. Your depository institution
may impose its own charge for debiting your account which would reduce your
return from an investment in the Fund.

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HOW TO REDEEM SHARES
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You may redeem shares of the Fund on each day that the Trust is open for
business by sending a written request to the Transfer Agent. The request must
state the number of shares or the dollar amount to be redeemed and your account
number. The request must be signed exactly as your name appears on the Trust's
account records. If the shares to be redeemed have a value of $25,000 or more,
your signature must be guaranteed by any eligible guarantor institution,
including banks, brokers and dealers, municipal securities brokers and dealers,
government securities brokers and dealers, credit unions, national securities
exchanges, registered securities associations, clearing agencies and savings
associations. If the name(s) or the address on your account has been changed
within 30 days of your redemption request, your signature must be guaranteed
regardless of the value of the shares being redeemed.

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

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

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

At the discretion of the Trust or the Transfer Agent, corporate investors
and other associations may be required to furnish an appropriate certification
authorizing redemptions to ensure proper authorization. The Trust reserves the
right to require you to close your account if at any time the value

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

The Trust reserves the right to suspend the right of redemption or to
postpone the date of payment for more than 3 business days under unusual
circumstances as determined by the Securities and Exchange Commission.

EXCHANGE PRIVILEGE
- ------------------

Shares of the Fund may be exchanged for shares of the other series of the
Trust, the GW&K Government Securities Fund, at net asset value. Shares of the
Fund may also be exchanged at net asset value for shares of the Short Term
Government Income Fund (a series of Countrywide Investment Trust), which invests
in short-term U.S. Government obligations backed by the "full faith and credit"
of the United States and seeks high current income, consistent with protection
of capital. Please contact the Transfer Agent (Nationwide call toll-free
800-543-0407) to obtain the prospectus of the Short Term Government Income Fund.
Shares of the Short Term Government Income Fund acquired via exchange may be
re-exchanged for shares of the Fund at net asset value.

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

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

DIVIDENDS AND DISTRIBUTIONS
- ---------------------------

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

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Distributions are paid according to one of the following options:

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

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

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

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

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

TAXES
- -----

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

Distributions of net capital gains (i.e., the excess of net long-term
capital gains over net short-term capital losses) by the Fund to its
shareholders are taxable to the recipient shareholders as capital gains, without
regard to the length of time a shareholder has held Fund shares. Capital gains
distributions may be taxable at different rates depending on how long the Fund
holds its assets. Redemptions of shares of the Fund are taxable events on which
a shareholder may realize a gain or loss.

On December 10, 1996, prior to the offering of its shares to the public,
the Fund exchanged its shares for portfolio securities of GW&K Equity Fund, L.P.
(the "Partnership"), a Delaware limited partnership, after which the Partnership
dissolved and distributed Fund shares received pro rata to its partners.
Following this exchange transaction (the "Exchange"), partners of the
Partnership constituted all of the shareholders of the Fund, except for shares
representing seed capital contributed to the Fund by Harold G. Kotler and Edward
B. White. The Exchange was intended to qualify as a tax-free

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reorganization, with no gain or loss recognized by the Partnership or its
partners. The Exchange may result in adverse tax consequences to future
shareholders of the Fund. As a result of this Exchange, the Fund acquired
securities that had appreciated in value from the date they were originally
acquired by the Partnership. If these appreciated securities are subsequently
sold by the Fund after the Exchange, the amount of the gain will be taxable to
future shareholders as well as to shareholders who received Fund shares in the
Exchange. The effect of this for future shareholders would be to immediately tax
them on a distribution that represents a return of the purchase price of their
shares rather than an increase in the value of their investment. The effect on
shareholders who received Fund shares in the Exchange would be to reduce their
potential liability for tax on capital gains by spreading such liability over a
larger asset base.

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

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

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

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

Edward B. White, a Principal and First Senior Vice President of the
Adviser, is primarily responsible for managing the Fund's portfolio. Mr. White
joined the Adviser as a Principal and Senior Vice President in 1989.

YEAR 2000 READINESS. Like other mutual funds, the Fund could be adversely
affected if the computer systems used by the Adviser or the Fund's various
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. The Adviser has taken steps that it
believes are reasonably designed to address the Year 2000 issue with respect to
computer systems that are used and to obtain reasonable assurances that
comparable steps have been taken by the Fund's major service providers. However,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on the Fund. The Adviser will continue to monitor its systems and
those of the Fund's service providers for any such adverse impact related to the
Year 2000 issue.

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

Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund
has adopted a plan of distribution (the "Plan") under which the Fund may
directly incur or reimburse the Adviser for certain distribution-related
expenses, including;

o payments to securities dealers and others who are engaged in the sale of
shares of the Fund and who may be advising investors regarding the
purchase, sale or retention of such shares;
o expenses of maintaining personnel who engage in or support distribution of
shares or who render shareholder support services not otherwise provided by
the Transfer Agent;
o expenses of formulating and implementing marketing and promotional
activities, including direct mail promotions and mass media advertising;
o expenses of preparing, printing and distributing sales literature and
prospectuses and statements of additional information and reports for
recipients other than existing shareholders of the Fund;
o expenses of obtaining such information, analyses and reports with respect
to marketing and promotional activities as the Trust may, from time to
time, deem advisable; and
o and any other expenses related to the distribution of the Fund's shares.

The annual limitation for payment of expenses pursuant to the Plan is .25%
of the Fund's average daily net assets. Unreimbursed expenditures will not be
carried over from year to year. Because these fees were paid out of the Fund's
assets on an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges. In
the event the Plan is terminated by the Fund in accordance with its terms, the
Fund will not be required to make any payments for expenses incurred after the
date the Plan terminates.

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

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

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(2) securities traded in the over-the-counter market, and which are not quoted
by NASDAQ, are valued at the last sale price (or, if the last sale price is not
readily available, at the last bid price as quoted by brokers that make markets
in the securities) as of the close of the regular session of trading on the New
York Stock Exchange on the day the securities are being valued, (3) securities
which are traded both in the over-the-counter market and on a stock exchange are
valued according to the broadest and most representative market, and (4)
securities (and other assets) for which market quotations are not readily
available are valued at their fair value as determined in good faith in
accordance with consistently applied procedures established by and under the
general supervision of the Board of Trustees. The net asset value per share of
the Fund will fluctuate with the value of the securities it holds.

PRIOR PERFORMANCE OF GW&K EQUITY FUND, L.P. The investment performance
illustrated below combines the performance of the GW&K Equity Fund, since its
commencement of operations on December 10, 1996, and the performance of its
predecessor, the GW&K Equity Fund, L.P. (the "Partnership"), for periods prior
to December 10, 1996. The Partnership was managed by the Adviser with investment
objectives, policies and strategies substantially similar to those employed by
the Adviser in managing the Fund.

While the Adviser employs for the Fund investment objectives and strategies
that are substantially similar to those that were employed by the Adviser in
managing the Partnership, the Adviser, in managing the Fund, may be subject to
certain restrictions on its investment activities to which, as investment
adviser to the Partnership, it was not previously subject. The Partnership was
not registered under the Investment Company Act of 1940 (the "1940 Act") and
therefore was not subject to certain restrictions that are imposed by the 1940
Act, such as limits on the percentage of assets invested in securities of
issuers in a single industry, diversification requirements and requirements
regarding distributing income to shareholders. If the Partnership had been so
registered, performance may have been adversely affected. Operating expenses are
incurred by the Fund which were not incurred by the Partnership.

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

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RATES OF RETURN
GW&K S&P Russell
Equity 500 2000
Period Fund Index Index
- ------ ------ ----- -----
August 1 -
December 31, 1991 10.86%* 9.09%* 10.47%*

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

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

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

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

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

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

Year Ended
December 31, 1998 17.68% 28.58% -2.55%

Year Ended
December 31, 1999 31.28% 21.04% 21.25%

Five Years Ended
December 31, 1999
Cumulative Return 215.26%* 250.98%* 116.34%*

August 1, 1991 -
December 31, 1999
Cumulative Return 321.38%* 359.37%* 230.93%*

* Not Annualized

-14-
<PAGE>

Average Annual Total Returns For Periods Ended December 31, 1999
- ----------------------------------------------------------------

Since Inception
One Year Five Years (August 1, 1991)
-------- ---------- ----------------

The GW&K Equity Fund 31.28% 25.82% 18.62%
Standard & Poor's
500 Index* 21.04% 28.55% 19.84%
Russell 2000 Index** 21.25% 16.69% 15.26%

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

FINANCIAL HIGHLIGHTS
- --------------------

The financial highlights table is intended to help you understand the Fund's
financial performance. Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by Arthur
Andersen LLP, whose report, along with the Fund's financial statements, are
included in the Statement of Additional Information, which is available upon
request.

<TABLE>
<CAPTION>
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 .................... $ 10.90 $ 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.

(D) Annualized.

-15-
<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

Shareholder Service
- -------------------
Nationwide: (Toll-Free) 888-GWK-FUND
(888-495-3863)

Additional information about the Fund is included in the Statement of Additional
Information ("SAI"), which is hereby incorporated by reference in its entirety.
Additional information about the Fund's investments is available in the Fund's
annual and semiannual reports to shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during the last fiscal year.

To obtain a free copy of the SAI, the annual and semiannual reports or other
information about the Fund, or to make inquires about the Fund, please call
1-888-GWK-FUND (1-888-495-3863).

Information about the Fund, including the SAI, can be reviewed and copied at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
Information on the operation of the public reference room may be obtained by
calling the Commission at 1- 202-942-8090. Reports and other information about
the Fund are available on the EDGAR Database on the Commission's Internet site
at http:/www.sec.gov. Copies of information on the Commission's Internet site
may be obtained upon payment of a duplicating fee, by electronic request at the
following e-mail address: [email protected], or by writing the Public Reference
Section of the Commission, Washington, D.C. 20549-0102.

File No. 811-7673

-16-
<PAGE>

[Logo] The
Gannett
Welsh &
Kotler
Funds

GW&K Equity Fund

Prospectus
February 1, 2000

No-Load Fund

<PAGE>

PROSPECTUS
February 1, 2000

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

GW&K GOVERNMENT SECURITIES FUND

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

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

This Prospectus sets forth concisely the information about the Fund that
you should know before investing. Please retain this Prospectus for future
reference.

TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Risk/Return Summary............................................................2
Expense Information............................................................4
Investment Objective, Principal Investment Policies and
Risk Considerations..........................................................4
How to Purchase Shares.........................................................8
Shareholder Services...........................................................9
How to Redeem Shares..........................................................10
Exchange Privilege............................................................11
Dividends and Distributions...................................................12
Taxes.........................................................................12
Operation of the Fund.........................................................13
Distribution Plan.............................................................14
Calculation of Share Price....................................................14
Financial Highlights..........................................................15
- --------------------------------------------------------------------------------

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

<PAGE>

RISK/RETURN SUMMARY
- -------------------

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund seeks total return, through both income and capital appreciation.

WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?

Under normal market conditions, the Fund will invest at least 65% of its
total assets in obligations issued or guaranteed as to principal and interest by
the United States Government, its agencies or instrumentalities ("U.S.
Government obligations"). The Fund may invest up to 35% of its total assets in
debt obligations which are not U.S. Government obligations (including corporate
debt securities, mortgage-backed securities and asset-backed securities) without
regard to the quality ratings assigned by nationally recognized statistical
rating organizations. These obligations may include securities rated Baa or BBB
or below or the equivalent (commonly called "junk bonds").

The Fund may invest in securities of any maturity. The Fund's average
maturity will generally be approximately 20 years, though it may shorten to less
than 10 years, depending on the Adviser's assessment of the current and future
interest rate environment.

WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?

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

EXTENSION RISK. The Fund may be subject to extension risk, which is the
risk that rising interest rates may cause prepayments of mortgage-backed
securities, asset-backed securities or corporate debt securities to occur at a
slower than expected rate. This would increase the inherent volatility of the
Fund by effectively converting short-term debt securities into long-term debt
securities.

PREPAYMENT RISK. The Fund may be subject to prepayment risk, which is the
risk that falling interest rates may cause prepayments of mortgage-backed
securities, asset-backed securities or corporate debt securities to occur at a
faster than expected rate. As a result, the Fund may be forced to reinvest
principal at a lower rate than the original yield.

JUNK BOND RISK. Junk bonds have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to pay principal and interest than is the case with higher grade
securities. In addition, there may be less of a

-2-
<PAGE>

market for junk bonds, which could make it harder to sell them at an acceptable
price. These and related risks mean that the Fund may not achieve the income
expected from junk bonds and that its share price may be adversely affected by
declines in the value of these securities.

U.S. GOVERNMENT SECURITIES RISK. U.S. Government securities risk is the
risk that the U.S. Government will not provide financial support to U.S.
Government agencies, instrumentalities or sponsored enterprises if it is not
obligated to do so by law.

An investment in the Fund is not a deposit of a bank and it is not insured
or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.

PERFORMANCE SUMMARY

[bar chart]

7.15% 4.75% 3.20%

1997 1998 1999

During the period shown in the bar chart, the highest return for a quarter was
2.17% during the quarter ended June 30, 1997 and the lowest return for a quarter
was 0.53% during the quarter ended September 30, 1999.

Average Annual Total Returns For Periods Ended December 31, 1999
- ----------------------------------------------------------------

Since Inception
One Year (December 16, 1996)
-------- -------------------
The GW&K Government 3.20% 5.56%
Securities Fund
Lehman 1-3 Year Government
Bond Index* 2.97% 5.37%

*The Lehman 1-3 Year Government Bond Index is an unmanaged index generally
representative of U.S. Government obligations.

-3-
<PAGE>

EXPENSE INFORMATION
- -------------------

THIS TABLE DESCRIBES FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FUND.

SHAREHOLDER FEES (fees paid directly from your investment)

Maximum Sales Charge (Load) Imposed on Purchases .............. None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends.... None
Redemption Fees ............................................... None

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)

Management Fees ............................................... .75%
Distribution (12b-1) Fees ..................................... .01%
Other Expenses ................................................ .55%
-----
Total Annual Fund Operating Expenses .......................... 1.31%(A)
=====

(A) The Adviser has voluntarily agreed to waive a portion of its management fee
and/or reimburse Fund expenses to the extent necessary to limit total
annual Fund operating expenses to 1.00% of the Fund's average daily net
assets. However, this arrangement may be terminated at any time at the
option of the Adviser.

1 Year 3 Years 5 Years 10 Years
$133 $ 415 $718 $1,579

INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT POLICIES AND RISK CONSIDERATIONS
- ---------------------------------------------------------------------------

INVESTMENT OBJECTIVE

The investment objective of the Fund is to seek total return, through both
income and capital appreciation. The Fund's investment objective may be changed
by the Board of Trustees without shareholder approval, but only after
notification has been given to shareholders and after this Prospectus has been
revised accordingly.

-4-
<PAGE>

PRINCIPAL INVESTMENT POLICIES

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

The Fund may invest up to 35% of its total assets in debt securities which
are not U.S. Government obligations (including corporate debt securities,
mortgage-backed and asset-backed securities) without regard to quality ratings
assigned by rating organizations such as Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Ratings Group ("S&P"). The Fund does not
currently intend to invest more than 35% of its net assets in lower-rated debt
securities i.e., securities rated Baa or below by Moody's or BBB or below by
S&P, or the equivalent (commonly called "junk bonds"). If subsequent to its
purchase by the Fund, the reduction of a security's rating below Baa or BBB
causes the Fund to hold more than 35% of its net assets in junk bonds, the
Adviser will sell a sufficient amount of such junk bonds, subject to market
conditions and the Adviser's assessment of the most opportune time for sale, in
order to lower the percentage of the Fund's net assets invested in such
securities to 35% or less.

In selecting securities for the Fund, the Adviser will consider not only
securities that it believes will provide income, but also securities that
provide the potential for capital appreciation, possibly through an improved
credit outlook for the security or a decrease in interest rates. There is no
limit on the maturity of the securities in which the Fund may invest. The
average maturity of the Fund will generally be approximately 20 years, though it
may shorten to less than 10 years, depending on the Adviser's assessment of the
current and future interest rate environment.

For defensive purposes, the Fund may temporarily hold all or a portion of
its assets in money market instruments. The money market instruments which the
Fund may own from time to time include U.S. Government obligations having a
maturity of less than one year, shares of

-5-
<PAGE>

money market investment companies, commercial paper rated A-3 or better by S&P
or Prime-3 or better by Moody's, repurchase agreements, bank debt instruments
(certificates of deposit, time deposits and bankers' acceptances) and U.S.
dollar-denominated instruments issued by domestic or foreign branches of U.S.
banks and U.S. branches of foreign banks. Investments by the Fund in shares of
money market investment companies may result in duplication of advisory,
administrative and distribution fees. When taking a temporary defensive
position, the Fund may not achieve its investment objective.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The Fund may invest in
mortgage-backed securities, which are mortgage loans made by banks, savings and
loan institutions, and other lenders which are assembled into pools. Often these
securities are issued and guaranteed by an agency or instrumentality of the
United States Government, though not necessarily backed by the full faith and
credit of the United States Government, or are collateralized by U.S. Government
obligations. The Fund invests in mortgage-backed securities representing
undivided ownership interests in pools of mortgage loans, including Government
National Mortgage Association (GNMA), Federal National Mortgage Association
(FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) Certificates and
so-called "CMOs" -- i.e., collateralized mortgage obligations which are issued
by non-governmental entities.

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

Asset-backed securities may include such securities as Certificates for
Automobile Receivables and Credit Card Receivable Securities. Certificates for
Automobile Receivables represent undivided fractional interests in a pool of
motor vehicle retail installment sales contracts. Credit Card Receivable
Securities are backed by receivables from revolving credit card agreements. The
Fund may also invest in other asset-backed securities that may be developed in
the future, provided that this Prospectus is revised before the Fund does so.

RISK CONSIDERATIONS

JUNK BOND RISK. Junk bonds may be subject to certain risk factors to which
other securities are not subject to the same degree:

o The credit rating of a security does not necessarily address its
market value risk. Also, ratings may, from time to time, be changed to
reflect developments in the issuer's financial condition. Junk bonds
held by the Fund have speculative characteristics which

-6-
<PAGE>

are apt to increase in number and significance with each lower rating
category.
o An economic downturn tends to disrupt the market for junk bonds and
adversely affect their values. Such an economic downturn may be
expected to result in increased price volatility of junk bonds and of
the value of the Fund's shares, and an increase in issuers' defaults
on such bonds.
o Many issuers of junk bonds are substantially leveraged, which may
impair their ability to meet their obligations. In some cases, the
securities in which the Fund invests are subordinated to the prior
payment of senior indebtedness, thus potentially limiting the Fund's
ability to recover full principal or to receive payments when senior
securities are in default.
o When the secondary market for junk bonds becomes increasingly
illiquid, or in the absence of readily available market quotations for
junk bonds, the relative lack of reliable, objective data makes the
responsibility of the Trustees to value such securities more
difficult, and judgment plays a greater role in the valuation of
portfolio securities. Also, increased illiquidity of the market for
junk bonds may affect the Fund's ability to sell portfolio securities
at a desirable price. In addition, if the Fund experiences unexpected
net redemptions, it could be forced to sell all or a portion of its
junk bonds without regard to their investment merits, thereby
decreasing the asset base upon which the Fund's expenses can be spread
and possibly reducing the Fund's rate of return.
o Prices of junk bonds have been found to be less sensitive to interest
rate changes and more sensitive to adverse economic changes and
individual corporate developments than more highly rated investments.

MATURITY RISK. Securities with longer maturities generally offer both
higher yields and greater exposure to market fluctuation from changes in
interest rates. Consequently, to the extent the Fund is significantly invested
in securities with longer maturities, there is a possibility of greater
fluctuation in the Fund's net asset value.

PREPAYMENT RISK. The rate of return on mortgage-backed securities may be
affected by the rate of early prepayment of principal on the underlying loans.
The rate of return on corporate debt securities may be affected by the early
prepayment of the obligation by its issuer. Prepayment rates vary widely and may
be affected by changes in market interest rates. Reinvestment of principal may
occur at lower rates than the original yield. It is not possible to accurately
predict the average life of a particular pool of underlying mortgages.
Therefore, the actual maturity and realized yield on mortgage-backed securities
will vary based upon the prepayment experience of the underlying pool of
mortgages.

The sales contracts underlying Certificates for Automobile Receivables are
subject to prepayment, which may reduce the overall return to certificate
holders. Certificate holders may also experience delays in payment or losses if
the full amounts due on underlying sales contracts are not realized because of
unanticipated costs of enforcing the contracts or because of depreciation,
damage or loss of the vehicles securing the contracts, or other factors.

-7-
<PAGE>

Unlike most other asset-backed securities, Credit Card Receivable
Securities are unsecured obligations of the credit cardholders. An acceleration
in cardholders' payment rates may adversely affect the overall return to holders
of such certificates, because the principal may be reinvested at a lower rate
than the original yield.

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

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

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

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

The Trust mails you confirmations of all purchases or redemptions of Fund
shares. Certificates representing shares are not issued. The Trust and the
Transfer Agent reserve the

-8-
<PAGE>

right to limit the amount of investments and to refuse to sell to any person.

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

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

SHAREHOLDER SERVICES
- --------------------

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

Automatic Withdrawal Plan
-------------------------

-9-
<PAGE>

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

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

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

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

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

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

HOW TO REDEEM SHARES
- --------------------

-10-
<PAGE>

Redemption requests may direct that the proceeds be wired directly to your
existing account in any commercial bank or brokerage firm in the United States.
If your instructions request a redemption by wire, you will be charged an $8
processing fee. The Trust reserves the right, upon 30 days' written notice, to
change the processing fee. All charges will be deducted from your account by
redemption of shares in your account. Your bank or brokerage firm may also
impose a charge for processing the wire. In the event that wire transfer of
funds is impossible or impractical, the redemption proceeds will be sent by mail
to the designated account.

Shares are redeemed at their net asset value per share next determined
after receipt by the Transfer Agent of a proper redemption request in the form
described above. Payment is made within 3 business days after tender in such
form, provided that payment in redemption of shares purchased by check will be
effected only after the check has been collected, which may take up to 15 days
from the purchase date. To eliminate this delay, you may purchase shares of the
Fund by certified check, government check or wire. At the discretion of the
Trust or the Transfer Agent, corporate investors and other associations may be
required to furnish an appropriate certification authorizing redemptions to
ensure proper authorization. The Trust reserves the right to require you to
close your account if at any time the value of your shares is less than the
minimum amount required by the Trust for your account (based on actual amounts
invested, unaffected by market fluctuations) or such other minimum amount as the
Trust may determine from time to time. After notification to you of the Trust's
intention to close your account, you will be given 30 days to increase the value
of your account to the minimum amount.

EXCHANGE PRIVILEGE
- ------------------

Shares of the Fund may be exchanged for shares of the other series of the
Trust, the GW&K Equity Fund, at net asset value. Shares of the Fund may also be
exchanged at net asset value for shares of the Short Term Government Income Fund
(a series of Countrywide Investment Trust), which invests in short-term U.S.
Government obligations backed by the "full faith and credit" of the United
States and seeks high current income, consistent with protection of capital.
Please contact the Transfer Agent (Nationwide call toll-free 800-543-0407) to
obtain a

-11-
<PAGE>

prospectus for the Short Term Government Income Fund. Shares of the Short Term
Government Income Fund acquired via exchange may be re-exchanged for shares of
the Fund at net asset value.

DIVIDENDS AND DISTRIBUTIONS
- ---------------------------

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

Distributions are paid according to one of the following options:

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

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

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

-12-
<PAGE>

TAXES
- -----

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

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

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

David M. Carter, a Vice President and Portfolio Manager of the Adviser, is
primarily responsible for managing the Fund's portfolio. Mr. Carter joined the
Adviser in 1998. From 1997 to 1998, he worked as an associate for the Lens Fund,
where he was responsible for identifying and evaluating potential investments in
corporations across all major industries.

-13-
<PAGE>

From 1995 to 1997, he was a student at the University of Chicago Graduate School
of Business where he earned a Masters of Business Administration degree. Prior
to that, he was an analyst in Debt Capital Markets at Chase Manhattan Corp.

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

o payments to securities dealers and others who are engaged in the sale
of shares of the Fund and who may be advising investors regarding the
purchase, sale or retention of such shares;
o expenses of maintaining personnel who engage in or support
distribution of shares or who render shareholder support services not
otherwise provided by the Transfer Agent;
o expenses of formulating and implementing marketing and promotional
activities, including direct mail promotions and mass media
advertising;
o expenses of preparing, printing and distributing sales literature and
prospectuses and statements of additional information and reports for
recipients other than existing shareholders of the Fund; and
o expenses of obtaining such information, analyses and reports with
respect to marketing and promotional activities as the Trust may, from
time to time, deem advisable; and any other expenses related to the
distribution of the Fund's shares.

The annual limitation for payment of expenses pursuant to the Plan is .25%
of the Fund's average daily net assets. Unreimbursed expenditures will not be
carried over from year to year. Because these fees are paid out as the Fund's
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges. In
the event the Plan is terminated by the Fund in accordance with its terms, the
Fund will not be required to make any payments for expenses incurred after the
date the Plan terminates.

-14-
<PAGE>

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

U.S. Government obligations are valued at their most recent bid prices as
obtained from one or more of the major market makers for such securities. Other
portfolio securities are valued as follows: (1) securities which are traded on
stock exchanges or are quoted by NASDAQ are valued at the last reported sale
price as of the close of the regular session of trading on the New York Stock
Exchange on the day the securities are being valued, or, if not traded on a
particular day, at the closing bid price, (2) securities traded in the
over-the-counter market, and which are not quoted by NASDAQ, are valued at the
last sale price (or, if the last sale price is not readily available, at the
last bid price as quoted by brokers that make markets in the securities) as of
the close of the regular session of trading on the New York Stock Exchange on
the day the securities are being valued, (3) securities which are traded both in
the over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market, and (4) securities (and other assets)
for which market quotations are not readily available are valued at their fair
value as determined in good faith in accordance with consistently applied
procedures established by and under the general supervision of the Board of
Trustees. The net asset value per share of each Fund will fluctuate with the
value of the securities it holds.

FINANCIAL HIGHLIGHTS
- --------------------

<TABLE>
<CAPTION>
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.

(D) Annualized.

<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

Shareholder Service
- -------------------
Nationwide: (Toll-Free) 888-GWK-FUND
(888-495-3863)

To obtain a free copy of the SAI, the annual and semiannual reports or other
information about the Fund, or to make inquires about the Fund, please call
1-888-GWK-FUND (1-888-495-3863).

File No. 811-7673

<PAGE>

The
Gannett
[LOGO]Welsh &
Kotler
Funds

GW&K Government Securities Fund

Prospectus
February 1, 2000

No-Load Fund

<PAGE>

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

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

February 1, 2000

GW&K Equity Fund
GW&K Government Securities Fund

This Statement of Additional Information is not a Prospectus. It should be
read in conjunction with the Prospectus of the applicable Fund of The Gannett
Welsh & Kotler Funds dated February 1, 2000. A copy of each Fund's Prospectus
can be obtained by writing the Trust at 222 Berkeley Street, Boston,
Massachusetts 02116, or by calling the Trust nationwide toll-free 888-GWK-FUND
(888-495-3863).

<PAGE>

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

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

TABLE OF CONTENTS
-----------------
PAGE
----
THE TRUST ................................................................ 3

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

QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS .................. 14

INVESTMENT LIMITATIONS ................................................... 18

TRUSTEES AND OFFICERS .................................................... 20

THE INVESTMENT ADVISER ................................................... 21

DISTRIBUTION PLAN ........................................................ 22

SECURITIES TRANSACTIONS .................................................. 24

PORTFOLIO TURNOVER ....................................................... 25

CALCULATION OF SHARE PRICE ............................................... 26

TAXES .................................................................... 26

REDEMPTION IN KIND ....................................................... 27

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

PRINCIPAL SECURITY HOLDERS ............................................... 30

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

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

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

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

2
<PAGE>

THE TRUST
- ---------

The Gannett Welsh & Kotler Funds (the "Trust") was organized as a
Massachusetts business trust on April 30, 1996. The Trust is an open-end,
management investment company which currently offers two diversified series of
shares to investors: the GW&K Equity Fund and the GW&K Government Securities
Fund (referred to individually as a "Fund" and collectively as the "Funds").

Each Fund has its own investment objective and policies. If there is a
change in a Fund's investment objective, shareholders should consider whether
the Fund remains an appropriate investment in light of their then current
financial position and needs. Unless otherwise indicated, all investment
practices and limitations of each Fund are nonfundamental policies which may be
changed by the Board of Trustees without shareholder approval.

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

Shares of the Funds have equal voting rights and liquidation rights, and
are voted in the aggregate and not by series except in matters where a separate
vote is required by the Investment Company Act of 1940 (the "1940 Act") or when
the matter affects only the interest of a particular series. When matters are
submitted to shareholders for a vote, each shareholder is entitled to one vote
for each full share owned and fractional votes for fractional shares owned. The
Trust does not normally hold annual meetings of shareholders. The Trustees shall
promptly call and give notice of a meeting of shareholders for the purpose of
voting upon removal of any Trustee when requested to do so in writing by
shareholders holding 10% or more of the Trust's outstanding shares. The Trust
will comply with the provisions of Section 16(c) of the 1940 Act in order to
facilitate communications among shareholders.

Under Massachusetts law, under certain circumstances, shareholders of a
Massachusetts business trust could be deemed to have the same type of personal
liability for the obligations of

3
<PAGE>

the Trust as does a partner of a partnership. However, numerous investment
companies registered under the 1940 Act have been formed as Massachusetts
business trusts and the Trust is not aware of any instance where such result has
occurred. In addition, the Agreement and Declaration of Trust disclaims
shareholder liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the Trustees. The Agreement and
Declaration of Trust also provides for the indemnification out of the Trust
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Moreover, it provides that the Trust will,
upon request, assume the defense of any claim made against any shareholder for
any act or obligation of the Trust and satisfy any judgment thereon. As a
result, and particularly because the Trust assets are readily marketable and
ordinarily substantially exceed liabilities, management believes that the risk
of shareholder liability is slight and limited to circumstances in which the
Trust itself would be unable to meet its obligations. Management believes that,
in view of the above, the risk of personal liability is remote.

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

DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
- ---------------------------------------------

A more detailed discussion of some of the terms used and investment
policies described in the Prospectuses appears below:

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

U.S. GOVERNMENT OBLIGATIONS. Each Fund may invest in U.S. Government
obligations, which include securities which are issued or guaranteed by the U.S.
Treasury, by various agencies of the U.S. Government, and by various
instrumentalities which have been established or sponsored by the U.S.
Government. U.S. Treasury obligations include Treasury bills, Treasury notes and
Treasury bonds. U.S. Treasury obligations also include the separate principal
and interest components of U.S. Treasury obligations which are traded under the
Separate Trading of Registered Interest and Principal of Securities ("STRIPS")
program. Agencies and instrumentalities established by the United States
Government include the Federal Home Loan Banks, the Federal Land Bank, the
Government National Mortgage Association, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, the Student

4
<PAGE>

Loan Marketing Association, the Small Business Administration, the Bank for
Cooperatives, the Federal Intermediate Credit Bank, the Federal Financing Bank,
the Federal Farm Credit Banks, the Federal Agricultural Mortgage Corporation,
the Financing Corporation of America and the Tennessee Valley Authority.

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

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

BANK DEBT INSTRUMENTS. Bank debt instruments in which the Funds may invest
consist of certificates of deposit, bankers' acceptances and time deposits
issued by commercial banks, national banks and state banks, trust companies and
mutual savings banks, or banks or institutions the accounts of which are insured
by the Federal Deposit Insurance Corporation or the Federal Savings and Loan
Insurance Corporation. Certificates of deposit are negotiable certificates
evidencing the indebtedness of a commercial bank to repay funds deposited with
it for a definite period of time (usually from fourteen days to one year) at a
stated or variable interest rate. Bankers' acceptances are credit instruments
evidencing the obligation of a bank to pay a draft which has been drawn on it by
a customer, which instruments reflect the obligation both of the

5
<PAGE>

bank and of the drawer to pay the face amount of the instrument upon maturity.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Each Fund will not
invest in time deposits maturing in more than seven days if, as a result
thereof, more than 15% of the value of its net assets would be invested in such
securities and other illiquid securities.

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

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The average life of
mortgage-backed securities varies with the maturities of the underlying mortgage
instruments (generally up to 30 years) and with the extent of prepayments of the
mortgages themselves. Any such prepayments are passed through to the certificate
holder, reducing the stream of future payments. Prepayments tend to rise in
periods of falling interest rates, decreasing the average life of the
certificate and generating cash which must be invested in a lower interest rate
environment. This could limit the appreciation potential of the certificates
when compared to similar debt obligations which may not be paid down at will.
The coupon rates of mortgage-backed securities are lower than the interest rate
on the underlying mortgages by the amount of fees paid to the issuing agencies,
usually approximately 1/2 of 1%. When prevailing interest rates increase, the
value of the mortgage-backed securities may decrease, as do other non-redeemable
debt securities. However, when interest rates decline, the value of
mortgage-backed securities may not rise on a comparable basis with other
non-redeemable debt securities.

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

6
<PAGE>

U.S. Treasury. The average life of the mortgages backing newly issued FHLMC
Certificates is approximately 10 years. The Government National Mortgage
Association ("GNMA") Certificates represent pools of mortgages insured by the
Federal Housing Administration or the Farmers Home Administration or guaranteed
by the Veterans Administration. The guarantee of payments under GNMA
Certificates is backed by the full faith and credit of the United States. The
average life of the mortgages backing newly issued GNMA Certificates is
approximately 12 years.

The GW&K Government Securities Fund may also purchase mortgage-backed
securities issued by financial institutions, mortgage banks, and securities
broker-dealers (or affiliates of such institutions established to issue these
securities) in the form of collateralized mortgage obligations ("CMOs"). CMOs
are obligations fully collateralized directly or indirectly by a pool of
mortgages on which payments of principal and interest are passed through to the
holders of the CMOs, although not necessarily on a pro rata basis, on the same
schedule as they are received. The most common structure of a CMO contains four
classes of securities; the first three pay interest at their stated rates
beginning with the issue date, the final one is typically an accrual class (or Z
bond). The cash flows from the underlying mortgage collateral are applied first
to pay interest and then to retire securities. The classes of securities are
retired sequentially. All principal payments are directed first to the
shortest-maturity class (or A bonds). When those securities are completely
retired, all principal payments are then directed to the next-shortest-maturity
security (or B bond). This process continues until all of the classes have been
paid off. Because the cash flow is distributed sequentially instead of pro rata
as with pass-through securities, the cash flows and average lives of CMOs are
more predictable, and there is a period of time during which the investors in
the longer-maturity classes receive no principal paydowns.

The GW&K Government Securities Fund may also invest in stripped
mortgage-backed securities, which are derivative multiclass mortgage securities
issued by agencies or instrumentalities of the United States Government, or by
private originators of, or investors in, mortgage loans, including savings and
loan associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. Stripped mortgage-backed
securities are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of stripped mortgage-backed security will have one class
receiving all of the interest from the mortgage assets (the interest-only or
"IO" class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on the securities' yield to maturity. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Fund may fail to fully recoup its initial investment in these
securities even if the security is rated AAA or Aaa, and could even lose its
entire investment. Although stripped mortgage-backed securities are purchased
and sold by institutional investors through several investment banking firms
acting as brokers or dealers, these securities were only recently developed. As
a result, established trading markets have not developed for certain stripped
mortgage-backed securities. The Fund will not invest more than 15% of its net
assets in stripped mortgage-backed

7
<PAGE>

securities and CMOs for which there is no established market and other illiquid
securities. The Fund may invest more than 15% of its net assets in stripped
mortgage-backed securities and CMOs deemed to be liquid if the Adviser
determines, under the direction of the Board of Trustees, that the security can
be disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of the Fund's net asset value per share.
Pursuant to the position of the staff of the Securities and Exchange Commission,
the Fund will not invest more than 5% of its total assets in any CMO which is an
investment company under the 1940 Act and will not invest more than 10% of its
total assets in all such CMOs and securities of other investment companies.

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

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

The GW&K Government Securities Fund may also purchase other asset-backed
securities (unrelated to mortgage loans) such as Certificates for Automobile
ReceivablesSM ("CARS"SM) and Credit Card Receivable Securities. CARS represent
undivided fractional interests in a trust whose assets consist of a pool of
motor vehicle retail installment sales contracts and security interests in the
vehicles securing the contracts. Payments of principal and interest on CARS are
"passed-through" monthly to certificate holders, and are guaranteed up to
certain amounts by a letter of credit issued by a financial institution
unaffiliated with the trustee or originator of the trust.

8
<PAGE>

Underlying sales contracts are subject to prepayment, which may reduce the
overall return to certificate holders. Certificate holders may also experience
delays in payment or losses on CARS if the full amounts due on underlying sales
contracts are not realized by the trust because of unanticipated legal or
administrative costs of enforcing the contracts, or because of depreciation,
damage, or loss of the vehicles securing the contracts, or other factors. Credit
Card Receivable Securities are backed by receivables from revolving credit card
agreements. Credit balances on revolving credit card agreements ("Accounts") are
generally paid down more rapidly than are automobile contracts. Most of the
Credit Card Receivable Securities issued publicly to date have been pass-through
certificates. In order to lengthen the maturity of Credit Card Receivable
Securities, most such securities provide for a fixed period during which only
interest payments on the underlying Accounts are passed through to the security
holder and principal payments received on such Accounts are used to fund the
transfer to the pool of assets supporting the securities of additional credit
card charges made on an Account. The initial fixed period usually may be
shortened upon the occurrence of specified events which signal a potential
deterioration in the quality of the assets backing the security, such as the
imposition of a cap on interest rates. The ability of the issuer to extend the
life of an issue of Credit Card Receivable Securities thus depends upon the
continued generation of additional principal amounts in the underlying Accounts
and the non-occurrence of specified events. The Internal Revenue Code of 1986,
which phased out the deduction for consumer interest, as well as competitive and
general economic factors, could adversely affect the rate at which new
receivables are created in an Account and conveyed to an issuer, shortening the
expected weighted average life of the related security, and reducing its yield.
An acceleration in cardholders' payment rates or any other event which shortens
the period during which additional credit card charges on an Account may be
transferred to the pool of assets supporting the related security could have a
similar effect on the weighted average life and yield. Credit card holders are
entitled to the protection of state and federal consumer credit laws, many of
which give such holder the right to set off certain amounts against balances
owed on the credit card, thereby reducing amounts paid on Accounts. In addition,
unlike most other asset-backed securities, Accounts are unsecured obligations of
the cardholder. The Fund will not invest more than 15% of its net assets in
asset-backed securities for which there is no established market and other
illiquid securities.

STRIPS. STRIPS are U.S. Treasury bills, notes, and bonds that have been
issued without interest coupons or stripped of their unmatured interest coupons,
interest coupons that have been stripped from such U.S. Treasury securities, and
receipts or certificates representing interests in such stripped U.S. Treasury
securities and coupons. A STRIPS security pays no interest in cash to its holder
during its life although interest is accrued for federal income tax purposes.
Its value to an investor consists of the difference between its face value at
the time of maturity and the price for which it was acquired, which is generally
an amount significantly less than its face value. Investing in STRIPS may help
to preserve capital during periods of declining interest rates. For example, if
interest rates decline, GNMA Certificates owned by a Fund which were purchased
at greater than par are more likely to be prepaid, which would cause a loss of
principal. In anticipation of this, a Fund might purchase STRIPS, the value of
which would be expected to increase when interest rates decline.

9
<PAGE>

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

LOWER-RATED SECURITIES. The GW&K Equity Fund may invest in securities
convertible into common stock (such as convertible bonds and convertible
preferred stocks) without regard to quality ratings assigned by rating
organizations such as Moody's and S&P. Lower-rated securities (commonly called
"junk bonds"), i.e., securities rated below Baa by Moody's or below BBB by S&P,
or the equivalent, will have speculative characteristics (including the
possibility of default or bankruptcy of the issuers of such securities, market
price volatility based upon interest rate sensitivity, questionable
creditworthiness and relative liquidity of the secondary trading market).
Because lower-rated securities have been found to be more sensitive to adverse
economic changes or individual corporate developments and less sensitive to
interest rate changes than higher-rated investments, an economic downturn could
disrupt the market for such securities and adversely affect the value of
outstanding bonds and the ability of issuers to repay principal and interest. In
addition, in a declining interest rate market, issuers of lower-rated securities
may exercise redemption or call provisions, which may force the Fund, to the
extent it owns such securities, to replace those securities with lower yielding
securities. This could result in a decreased return for investors. The GW&K
Equity Fund does not currently intend to invest more than 5% of its net assets
in lower-rated securities. If subsequent to its purchase by the Fund, the
reduction of a security's rating below Baa or BBB causes the Fund to hold more
than 5% of its net assets in lower-rated securities, the Adviser will sell a
sufficient amount of such lower-rated securities, subject to market conditions
and the Adviser's assessment of the most opportune time for sale, in order to
lower the percentage of the Fund's net assets invested in such securities to 5%
or less.

WHEN-ISSUED SECURITIES AND SECURITIES PURCHASED ON A TO-BE-ANNOUNCED BASIS.
The GW&K Government Securities Fund may purchase debt obligations on a
"when-issued" or "to-be-announced" basis. The Fund will only make commitments to
purchase securities on a when-issued or to-be-announced ("TBA") basis with the
intention of actually acquiring the securities. In addition, the Fund may
purchase securities on a when-issued or TBA basis only if delivery and payment
for the securities takes place within 120 days after the date of the
transaction. In connection with these investments, the Fund will direct the
Custodian to place cash or liquid securities in a segregated account in an
amount sufficient to make payment for the securities to be purchased. When a
segregated account is maintained because the Fund purchases securities on a
when-issued or TBA basis, the assets deposited in the segregated account will be
valued daily at

10
<PAGE>

market for the purpose of determining the adequacy of the securities in the
account. If the market value of such securities declines, additional cash or
securities will be placed in the account on a daily basis so that the market
value of the account will equal the amount of the Fund's commitments to purchase
securities on a when-issued or TBA basis. To the extent funds are in a
segregated account, they will not be available for new investment or to meet
redemptions. Securities purchased on a when-issued or TBA basis and the
securities held in the Fund's portfolio are subject to changes in market value
based upon changes in the level of interest rates (which will generally result
in all of those securities changing in value in the same way, i.e., all those
securities experiencing appreciation when interest rates decline and
depreciation when interest rates rise). No interest accrues to the Fund until
settlement. Therefore, if in order to achieve higher returns, the Fund remains
substantially fully invested at the same time that it has purchased securities
on a when-issued or TBA basis, there will be a possibility that the market value
of the Fund's assets will experience greater fluctuation. The purchase of
securities on a when-issued or TBA basis may involve a risk of loss if the
broker-dealer selling the securities fails to deliver after the value of the
securities has risen.

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

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

Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be more
than one year after the Fund's acquisition of the securities and normally would
be within a shorter period of time. The resale

11
<PAGE>

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

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

LOANS OF PORTFOLIO SECURITIES. Each Fund may, from time to time, lend its
portfolio securities on a short-term basis (i.e., for up to seven days) to
banks, brokers and dealers and receive as collateral cash, U.S. Government
obligations or irrevocable bank letters of credit (or any combination thereof),
which collateral will be required to be maintained at all times in an amount
equal to at least 100% of the current value of the loaned securities plus
accrued interest. It is the present intention of the Trust, which may be changed
without shareholder approval, that loans of portfolio securities will not be
made with respect to the Fund if as a result the aggregate of all outstanding
loans exceeds one-third of the value of the Fund's total assets.

Under applicable regulatory requirements (which are subject to change), the
loan collateral must, on each business day, at least equal the value of the
loaned securities. To be acceptable as collateral, letters of credit must
obligate a bank to pay amounts demanded by a Fund if the

12
<PAGE>

demand meets the terms of the letter. Such terms and the issuing bank must be
satisfactory to the Fund. Securities lending will afford the Funds the
opportunity to earn additional income because the Funds receive amounts equal to
the dividends or interest on loaned securities and also receive one or more of
(a) negotiated loan fees, (b) interest on securities used as collateral, or (c)
interest on short-term debt securities purchased with such collateral; either
type of interest may be shared with the borrower. The Funds may also pay fees to
placing brokers as well as custodian and administrative fees in connection with
loans. Fees may only be paid to a placing broker provided that the Trustees
determine that the fee paid to the placing broker is reasonable and based solely
upon services rendered, that the Trustees separately consider the propriety of
any fee shared by the placing broker with the borrower, and that the fees are
not used to compensate the Adviser or any affiliated person of the Trust or an
affiliated person of the Adviser or other affiliated person. Such loans will be
terminable at any time. Loans of securities involve risks of delay in receiving
additional collateral or in recovering the securities lent or even loss of
rights in the collateral in the event of the insolvency of the borrower of the
securities. The Funds will have the right to regain record ownership of loaned
securities in order to exercise beneficial rights. The terms of the Funds' loans
must meet applicable tests under the Internal Revenue Code and permit the Funds
to reacquire loaned securities on five days' notice or in time to vote on any
important matter.

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

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

13
<PAGE>

Investments in foreign securities may also be subject to other risks different
from those affecting U.S. investments, including local political or economic
developments, expropriation or nationalization of assets, restrictions on
foreign investment and repatriation of capital, imposition of withholding taxes
on dividend or interest payments, currency blockage (which would prevent cash
from being brought back to the United States), and difficulty in enforcing legal
rights outside the United States.

The GW&K Equity Fund will invest primarily in domestic equity securities,
although it may invest in foreign companies through the purchase of sponsored
American Depository Receipts (certificates of ownership issued by an American
bank or trust company as a convenience to investors in lieu of the underlying
shares which such bank or trust company holds in custody) or other securities of
foreign issuers that are publicly traded in the United States. When selecting
foreign investments, the Adviser will seek to invest in securities that have
investment characteristics and qualities comparable to the kinds of domestic
securities in which the GW&K Equity Fund invests. The GW&K Government Securities
Fund may invest in U.S. dollar-denominated fixed-income securities issued by
foreign issuers, foreign branches of U.S. banks and U.S. branches of foreign
banks. The GW&K Government Securities Fund will not invest more than 15% of its
net assets in foreign securities which, in the opinion of the Adviser, are not
readily marketable and other illiquid securities.

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

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

QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS
- -------------------------------------------------------

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

14
<PAGE>

Moody's Investors Service, Inc.
-------------------------------

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

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

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

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

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

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

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

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

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

15
<PAGE>

Standard & Poor's Ratings Group
-------------------------------

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

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

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

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

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

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

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

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

Moody's Investors Service, Inc.
-------------------------------

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

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

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

16
<PAGE>

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

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

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

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

Standard & Poor's Ratings Group
-------------------------------

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

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

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

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

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

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

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

17
<PAGE>

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

INVESTMENT LIMITATIONS
- ----------------------

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

The limitations applicable to each Fund are:

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

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

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

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

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

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

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

18
<PAGE>

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

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

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

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

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

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

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

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

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

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

With respect to the percentages adopted by the Trust as maximum limitations
on a Fund's investment policies and restrictions, an excess above the fixed
percentage (except for the percentage limitations relative to the borrowing of
money and the holding of illiquid securities)

19
<PAGE>

will not be a violation of the policy or restriction unless the excess results
immediately and directly from the acquisition of any security or the action
taken.

TRUSTEES AND OFFICERS
- ---------------------

The following is a list of the Trustees and executive officers of the
Trust. Each Trustee who is an "interested person" of the Trust, as defined by
the 940 Act, is indicated by an asterisk.

Compensation
Name Age Position Held From the Trust
- ---- --- ------------- --------------
*Harold G. Kotler 55 President/Trustee $ 0
*Benjamin H. Gannett 57 Treasurer/Trustee 0
Arlene Zoe Aponte-Gonzalez 43 Trustee 4,000
Morton S. Grossman 76 Trustee 4,000
Timothy P. Neher 52 Trustee 4,000
+Josiah A. Spaulding, Jr. 48 Trustee 3,000
+Allan Tofias 69 Trustee 4,000
Irwin M. Heller 53 Secretary 0

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

+ Member of Audit Committee.

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

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

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

ARLENE ZOE APONTE-GONZALEZ, 155 Forest Hill, Jamaica Plain, Massachusetts,
is an Associate Director of Reebok International Ltd. (a sportswear company).
She previously was a Director of The Boston Plan for Excellence.

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

20
<PAGE>

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

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

ALLAN TOFIAS, 2044 Beacon Street, Newton, Massachusetts, is Chairman of the
Board of Tofias Fleishman Shapiro & Co. P.C. (an accounting and business
consulting firm).

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

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

THE INVESTMENT ADVISER
- ----------------------

Gannett Welsh & Kotler, Inc. (the "Adviser") is the Trust's investment
manager. Messrs. Kotler and Gannett are the controlling shareholders and are
principals of the Adviser and, as such, may directly or indirectly receive
benefits from the advisory fees paid to the Adviser. Under the terms of the
investment advisory agreement between the Trust and the Adviser, the Adviser
manages the Funds' investments. The GW&K Equity Fund pays the Adviser a fee
computed and accrued daily and paid monthly at an annual rate of 1.00% of its
average daily net assets. The GW&K Government Securities Fund pays the Adviser a
fee computed and accrued daily and paid monthly at an annual rate of .75% of its
average daily net assets. For the fiscal periods ended September 30, 1999, 1998
and 1997, the GW&K Equity Fund paid advisory fees of $521,783 (net of voluntary
fee waivers of $62,000), $384,880 (net of voluntary fee waivers of $75,000) and
$160,252 (net of voluntary fee waivers of $58,128), respectively. For the fiscal
periods ended September 30, 1999, 1998 and 1997, the GW&K Government Securities
Fund paid advisory fees of $153,571 (net of voluntary fee waivers of $106,000),
$112,824 (net of voluntary fee waivers of $104,000) and $39,071 (net of
voluntary fee waivers of $80,153), respectively.

In addition to the advisory fee, the Funds are responsible for the payment
of all expenses incurred in connection with the organization and operations of
the Funds, including such fees and expenses in connection with membership in
investment company organizations, brokerage fees and commissions, legal,
auditing and accounting expenses, expenses of registering shares under federal
and state securities laws, insurance expenses, taxes or governmental fees, fees
and expenses of the custodian, transfer agent, administrator, and accounting and
pricing agent of the Fund, fees and expenses of members of the Board of Trustees
who are not interested persons of the Trust, the cost of preparing and
distributing prospectuses, statements, reports and other documents to
shareholders, expenses of shareholders' meetings and proxy solicitations, and
extraordinary or non-recurring expenses as may arise, such as litigation to
which the Trust may be

21
<PAGE>

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

By its terms, the Trust's investment advisory agreement will remain in
force until December 3, 1999 and from year to year thereafter, subject to annual
approval by (a) the Board of Trustees or (b) a vote of the majority of a Fund's
outstanding voting securities; provided that in either event continuance is also
approved by a majority of the Trustees who are not interested persons of the
Trust, by a vote cast in person at a meeting called for the purpose of voting on
such approval. The Trust's investment advisory agreement may be terminated at
any time, on sixty days' written notice, without the payment of any penalty, by
the Board of Trustees, by a vote of the majority of a Fund's outstanding voting
securities, or by the Adviser. The investment advisory agreement automatically
terminates in the event of its assignment, as defined by the Investment Company
Act of 1940 and the rules thereunder.

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

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

As stated in each Fund's Prospectus, the Funds have adopted a plan of
distribution (the "Plan") pursuant to Rule 12b-1 under the Investment Company
Act of 1940 which permits each Fund to pay for expenses incurred in the
distribution and promotion of the Funds' shares, including but not limited to,
the printing of prospectuses, statements of additional information and reports
used for sales purposes, advertisements, expenses of preparation and printing of
sales literature, promotion, marketing and sales expenses and other
distribution-related expenses, including any distribution fees paid to
securities dealers or other firms who have executed a distribution or service
agreement with the Trust. Pursuant to the Plan, the Fund may also make payments
to banks or other financial institutions that provide shareholder services and
administer shareholder accounts. Banks may charge their customers fees for
offering these services to the extent permitted by regulatory authorities, and
the overall return to those shareholders availing themselves of the bank
services will be lower than to those shareholders who do not. The Fund may from
time to time purchase securities issued by banks which provide such services;
however, in selecting investments for the Funds, no preference will be shown for
such securities.

The Plan expressly limits payment of the distribution expenses listed above
in any fiscal year to a maximum of .25% of the average daily net assets of each
Fund. Unreimbursed expenses will not be carried over from year to year. For the
fiscal year ended September 30, 1999, the GW&K Equity Fund incurred distribution
expenses of $1,554 and the GW&K Government

22
<PAGE>

Securities Fund incurred distribution expenses of $1,204, which were incurred
for the preparation of prospectuses and reports for prospective shareholders.

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

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

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

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

23
<PAGE>

SECURITIES TRANSACTIONS
- -----------------------

Decisions to buy and sell securities for the Funds and the placing of the
Funds' securities transactions and negotiation of commission rates where
applicable are made by the Adviser and are subject to review by the Board of
Trustees of the Trust. In the purchase and sale of portfolio securities, the
Adviser seeks best execution for the Funds, taking into account such factors as
price (including the applicable brokerage commission or dealer spread), the
execution capability, financial responsibility and responsiveness of the broker
or dealer and the brokerage and research services provided by the broker or
dealer. The Adviser generally seeks favorable prices and commission rates that
are reasonable in relation to the benefits received. For the fiscal periods
ended September 30, 1999, 1998 and 1997, the GW&K Equity Fund paid brokerage
commissions of $51,341, $54,920 and $32,918, respectively.

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

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

Research services include securities and economic analyses, reports on
issuers' financial conditions and future business prospects, newsletters and
opinions relating to interest trends, general advice on the relative merits of
possible investment securities for the Funds and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Although this information is useful to the Funds and the
Adviser, it is not possible to place a dollar value on it. Research services
furnished by brokers through whom the Funds effect securities transactions may
be used by the Adviser in servicing all of its accounts and not all such
services may be used by the Adviser in connection with the Funds.

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

24
<PAGE>

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

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

PORTFOLIO TURNOVER
- ------------------

A Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Funds. High turnover may result in a Fund recognizing greater amounts of income
and capital gains, which would increase the amount of income and capital gains
which the Fund must distribute to shareholders in order to maintain its status
as a regulated investment company and to avoid the imposition of federal income
or excise taxes (see "Taxes"). Although the annual portfolio turnover rate of
each Fund cannot be accurately predicted, the Adviser anticipates that it
normally will not exceed 100% for each Fund, but may be either higher or lower.
A 100% turnover rate would occur if all of a Fund's portfolio securities were
replaced once within a one year period.

Generally, each Fund does not intend to use short-term trading as a primary
means of achieving its investment objective and intends to invest for long-term
purposes. However, the rate of portfolio turnover will depend upon market and
other conditions, and it will not be a limiting factor when the Adviser believes
that portfolio changes are appropriate. For the fiscal periods ended September
30, 1999, 1998 and 1997, the annualized portfolio turnover rate was 28%, 30% and
13%, respectively, for the GW&K Equity Fund and 27%, 37% and 44%, respectively,
for the GW&K Government Securities Fund.

25
<PAGE>

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

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

TAXES
- -----

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

Each Fund has qualified and intends to continue to qualify annually for the
special tax treatment afforded a "regulated investment company" under Subchapter
M of the Internal Revenue Code so that it does not pay federal taxes on income
and capital gains distributed to shareholders. To so qualify a Fund must, among
other things, (i) derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock, securities or foreign currency, or
certain other income (including but not limited to gains from options, futures
and forward contracts) derived with respect to its business of investing in
stock, securities or currencies; and (ii) diversify its holdings so that at the
end of each quarter of its taxable year the following two conditions are met:
(a) at least 50% of the value of the Fund's total assets is represented by cash,
U.S. Government securities, securities of other regulated investment companies
and other securities (for this purpose such other securities will qualify only
if the Fund's investment is limited in respect to any issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer) and (b) not more than 25% of the value of the Fund's
assets is invested in securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies).

A Fund's net realized capital gains from securities transactions will be
distributed only after reducing such gains by the amount of any available
capital loss carryforwards. Capital losses may be carried forward to offset any
capital gains for eight years, after which any undeducted capital loss remaining
is lost as a deduction. As of September 30, 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

26
<PAGE>

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.

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

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

REDEMPTION IN KIND
- ------------------

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

HISTORICAL PERFORMANCE INFORMATION
- ----------------------------------

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

n
P (1 + T) = ERV
Where:

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

27
<PAGE>

The calculation of average annual total return assumes the reinvestment of all
dividends and distributions and, with respect to the GW&K Equity Fund, will
include the performance of the Partnership prior to December 10, 1996. With
respect to the GW&K Equity Fund, it should be noted that: (1) the quoted
performance data includes performance for periods before the Fund's registration
statement became effective; (2) the Fund was not registered under the Investment
Company Act of 1940 (the "1940 Act") during such periods and therefore was not
subject to certain investment restrictions imposed by the 1940 Act; and (3) if
the Fund had been registered under the 1940 Act during such periods, performance
may have been adversely affected. If a Fund has been in existence less than one,
five or ten years, the time period since the date of the initial public offering
of shares will be substituted for the periods stated. The average annual total
returns of the GW&K Government Securities Fund for the one year period ended
September 30, 1999 and the period since inception (December 16, 1996) until
September 30, 1999 are 3.68% and 5.82%, respectively. The average annual total
returns of the GW&K Equity Fund for the periods ended September 30, 1999 are as
follows:

1 Year 28.62%
5 Years 20.65%
Since Inception (August 1, 1991) 16.10%

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

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

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

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

Solely for the purpose of computing yield, dividend income is recognized by
accruing 1/360 of the stated dividend rate of the security each day that a Fund
owns the security. Generally, interest earned (for the purpose of "a" above) on
debt obligations is computed by reference to the yield to

28
<PAGE>

maturity of each obligation held based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day prior to the start of the 30-day (or one month) period for which
yield is being calculated, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest). With respect to the
treatment of discount and premium on mortgage or other receivables-backed
obligations which are expected to be subject to monthly paydowns of principal
and interest, gain or loss attributable to actual monthly paydowns is accounted
for as an increase or decrease to interest income during the period and discount
or premium on the remaining security is not amortized. The yields of the GW&K
Equity Fund and the GW&K Government Securities Fund for September, 1999 were
.03% and 5.68%, respectively.

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

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

From time to time each Fund may advertise its performance rankings as
published by recognized independent mutual fund statistical services such as
Lipper Analytical Services, Inc. ("Lipper"), or by publications of general
interest such as FORBES, MONEY, THE WALL STREET JOURNAL, BUSINESS WEEK,
BARRON'S, FORTUNE or MORNINGSTAR MUTUAL FUND VALUES. Each Fund may also compare
its performance to that of other selected mutual funds, averages of the other
mutual funds within its category as determined by Lipper, or recognized
indicators. In connection with a ranking, a Fund may provide additional
information, such as the particular category of funds to which the ranking
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of fee waivers and/or expense reimbursements,
if any. Each Fund may also present its performance and other investment
characteristics, such as volatility or a temporary defensive posture, in light
of the Adviser's view of current or past market conditions or historical trends.
In addition, the Funds may use comparative performance information of relevant
indices, including the S&P 500 Index and the Russell 2000 Average. The S&P 500
Index is an unmanaged index of 500 stocks, the purpose of which is to portray
the pattern of common stock price movement. The Russell 2000 Average,
representing approximately 11% of the U.S. equity market, is an unmanaged index
comprised of the 2,000 smallest U.S. domiciled publicly-traded common stocks in
the Russell 3000 Index.

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

29
<PAGE>

PRINCIPAL SECURITY HOLDERS
- --------------------------

As of November 19, 1999, Wang Center for the Performing Arts, TTEE
Designate Endowment, c/o Mr. Joseph A. Spaulding, Jr., 270 Tremont Street,
Boston, Massachusetts 02116, owned of record 7.9% of the outstanding shares of
the GW&K Government Securities Fund.

As of the same date, the Trustees and officers of the Trust as a group
owned of record or beneficially less than 1% of the outstanding shares of each
Fund.

CUSTODIAN
- ---------

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

AUDITORS
- --------

The firm of Arthur Andersen LLP has been selected as independent public
accountants for the Trust for the fiscal year ending September 30, 2000. Arthur
Andersen LLP, 425 Walnut Street, Cincinnati, Ohio, performs an annual audit of
the Trust's financial statements and advises the Funds as to certain accounting
matters.

COUNTRYWIDE FUND SERVICES, INC.
- -------------------------------

The Trust has retained Countrywide Fund Services, Inc. (the "Transfer
Agent"), P.O. Box 5354, Cincinnati, Ohio, to serve as the Fund's transfer agent,
dividend paying agent and shareholder service agent. The Transfer Agent is a
wholly-owned subsidiary of Fort Washington Investment Advisors, Inc., a
full-service investment advisory firm wholly-owned by The Western and Southern
Life Insurance Company. The Transfer Agent maintains the records of each
shareholder's account, answers shareholders' inquiries concerning their
accounts, processes purchases and redemptions of the Funds' shares, acts as
dividend and distribution disbursing agent and performs other shareholder
service functions. The Transfer Agent receives for its services as transfer
agent a fee payable monthly at an annual rate of $17 per account from the GW&K
Equity Fund and $21 per account from the GW&K Government Securities Fund,
provided, however, that the minimum fee is $1,000 per month for each Fund. In
addition, the Funds pay out-of-pocket expenses, including but not limited to,
postage, envelopes, checks, drafts, forms, reports, record storage and
communication lines.

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

30
<PAGE>

Average Monthly Net Assets Monthly Fee
-------------------------- -----------
0 - $ 50,000,000 $2,000
50 - 100,000,000 2,500
100 - 250,000,000 3,000
Over 250,000,000 4,000

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

In addition, the Transfer Agent is retained to provide administrative
services to the Funds. In this capacity, the Transfer Agent supplies
non-investment related statistical and research data, internal regulatory
compliance services and executive and administrative services. The Transfer
Agent supervises the preparation of tax returns, reports to shareholders of the
Funds, reports to and filings with the Securities and Exchange Commission and
state securities commissions, and materials for meetings of the Board of
Trustees. For the performance of these administrative services, each Fund pays
the Transfer Agent a fee at the annual rate of .10% of the average value of its
daily net assets up to $100,000,000, .075% of such assets from $100,000,000 to
$200,000,000 and .05% of such assets in excess of $200,000,000; provided,
however, that the minimum fee is $1,000 per month for each Fund. During the
fiscal periods ended September 30, 1999, 1998 and 1997, the Transfer Agent
received administrative fees of $58,285, $46,066 and $19,090, respectively, from
the GW&K Equity Fund and $34,608, $28,882 and $13,305, respectively, from the
GW&K Government Securities Fund.

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

The Funds' financial statements as of September 30, 1999, which have been
audited by Arthur Andersen LLP, are attached to this Statement of Additional
Information.

31
<PAGE>

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

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.

- --------------------------------------------------------------------------------
Sept 99
-------
GW&K Equity Fund $33,837
S&P 500 Index $39,987
Russell 2000 Index $27,941

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

- --------------------------------------------------------------------------------
Sept 99
-------
GW&K Government Securities Fund $11,710
Lehman 1-3 Year Government Bond Index $11,685
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------

*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
- --------------------------------------------------------------------------------
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
------------ -----------
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)
- ------------------------------------------------------------------------------------------------------------
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).

(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).

(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