U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No.
Post-Effective Amendment No. 5
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 6
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(Check appropriate box or boxes)
THE GANNETT WELSH & KOTLER FUNDS
(Exact Name of Registrant as Specified in Charter)
222 Berkeley Street
Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 236-8900
T. Williams Roberts III
The Gannett Welsh & Kotler Funds
222 Berkeley Street
Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Copies to:
Tina D. Hosking
Countrywide Fund Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(6)
/ / on [date] pursuant to paragraph (a) of Rule 485
/X/ 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485
The Registrant has registered an indefinite number of shares of beneficial
interest of its GW&K Equity Fund and its GW&K Government Securities Fund under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940.
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PROSPECTUS
May __, 2000
THE GANNETT WELSH & KOTLER FUNDS
222 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116
(617) 236-8900
GW&K EQUITY FUND
GW&K LARGE CAP FUND
GW&K SMALL CAP FUND
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The GW&K EQUITY FUND (the "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 LARGE CAP FUND (the "Large Cap Fund") seeks long-term growth of
capital by investing in a diversified portfolio of large capitalization equity
securities.
The GW&K SMALL CAP FUND (the "Small Cap Fund") seeks long-term growth of
capital by investing in a diversified portfolio of small capitalization equity
securities.
Gannett Welsh & Kotler, Inc. (the "Adviser"), 222 Berkeley Street, Boston,
Massachusetts 02116, manages each 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.......................................................
Expense Information.......................................................
How to Purchase Shares....................................................
Shareholder Services......................................................
How to Redeem Shares......................................................
Exchange Privilege........................................................
Dividends and Distributions...............................................
Taxes.....................................................................
Operation of the Funds....................................................
Distribution Plan.........................................................
Calculation of Share Price................................................
Financial Highlights......................................................
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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
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
The 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 LARGE CAP FUND seeks long-term growth of capital by investing in a
diversified portfolio of large capitalization equity securities.
The SMALL CAP FUND seeks long-term growth of capital by investing in a
diversified portfolio of small capitalization equity securities.
Each 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 FUNDS' PRINCIPAL INVESTMENT STRATEGIES?
The Adviser 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 Adviser recognizes that a
prime determinate of a strategy's success, whether for the Equity Fund, the
Large Cap Fund or the Small Cap Fund, is the quality of the Adviser's research.
The Adviser therefore devotes an extraordinary amount of time to developing
original investment ideas with support from an array of information networks and
long-term brokerage relationships. The Adviser's proprietary research includes
meetings and conversations with company management, verification of Wall Street
earnings estimates with independent fundamental research and calculation of the
potential upside/downside risk of each stock it considers purchasing. The
Adviser examines sell-side research, reviews industry fundamentals, analyzes
company financial statements, and focuses on trends in a company's historical,
current and future earnings and/or revenue growth.
All three Funds normally will be fully invested (subject to liquidity
needs) in portfolios of domestic common stocks diversified across numerous
growth sectors. When, however, 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 respective Fund's portfolios, the Funds may temporarily hold for
defensive purposes all or a portion of their assets in short-term obligations
such as bank debt instruments (certificates of deposit, bankers' acceptances and
time deposits), commercial paper rated A-3 or better by S&P or Prime-3 or better
by Moody's, shares of money market investment companies, U.S. Government
obligations having a maturity of less than one year or repurchase agreements.
Investments by a Fund in shares of money market investment companies may result
in duplication of advisory, administrative and distribution fees. When taking a
temporary defensive position, a Fund may not achieve its investment objective.
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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.
THE EQUITY FUND
The EQUITY FUND will, under normal circumstances, have at least 65% of its
total assets invested in the common stocks of domestic companies. The Adviser
uses a bottom-up approach (focusing on specific companies rather than the
overall market level, industry sectors or particular economic trends) 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 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 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.
If the Adviser believes that substantial price risks exist for common
stocks and 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.
THE LARGE CAP FUND AND THE SMALL CAP FUND
The Adviser will seek out companies with positive and sustained earnings
growth trends in high growth markets, companies that recognize and exploit
important macroeconomic trends ahead of their competition, with an emphasis on
four principal trends, the first two of which
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apply to both the Large Cap Fund and the Small Cap Fund. One is the
technological revolution, including the internet, the emergence of broadband
communications and productivity improvements. Another is demographic changes,
such as the "graying" of America, the growth in peak spending years and wealth
accumulation and transfer. A third trend important to larger capitalization
companies is the emergence of global corporate leaders with the globalization of
economies, overseas growth opportunities and greater access to global
distribution channels. A third trend important to smaller capitalization
companies is outsourcing, the provision of goods and services to productivity
enablers.
The LARGE CAP FUND invests in a portfolio of 20-30 companies that the
Adviser identifies as industry leaders through in-depth company and industry
research. The Adviser starts with a universe of 600 companies whose market
capitalizations exceed $5 billion. This universe is then narrowed by screening
for companies that have had earnings growth of more than 12%, have a history of
positive sales growth, and have strong projected growth potential. Research is
then focused on specific industries the Adviser believes will be primary
beneficiaries of the aforementioned applicable macroeconomic trends.
Industry-level research within the large company universe and an understanding
of the competition of the selected companies is an important component in the
Adviser's investment process.
The SMALL CAP FUND invests in a portfolio of 25-35 companies. The Adviser
starts with a universe of 2,500 companies whose market capitalizations are
between $100 million and $1.5 billion. This universe is then screened for
various qualitative and quantitative characteristics. First, the Adviser looks
at a company's business model to determine its ability to benefit from one or
more of the foregoing applicable macroeconomic trends. Second, the Adviser
analyzes industries and securities, using various financial statistics to help
determine growth prospects and profitability, and ultimately its buy candidates.
Third, the Adviser diversifies the portfolio across many sectors, emphasizing
growth sectors over value sectors. This screening process results in an active
research list consisting of many companies that meet these criteria. These
potential buy candidates are then examined using rigorous fundamental research.
The Adviser's selections emphasize companies, in growth sectors of the market,
with attractive valuations.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUNDS?
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 Funds 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 Funds.
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 Equity Fund is
significantly invested in obligations
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with longer maturities, there is a possibility of greater fluctuation in the
Equity 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 Funds are invested in small and
medium capitalization securities, they will be exposed to these risks.
An investment in the Funds 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
The bar chart and performance table shown below provide an indication of
the risks of investing in the Equity 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 Equity 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.
The Equity Fund's year-to-date return through March 31, 2000 was _____%.
Average Annual Total Returns For Periods Ended December 31, 1999
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Since Inception
One Year (December 10, 1996)
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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Neither the Large Cap Fund nor the Small Cap Fund is permitted to report
performance information in this section because it has not completed one full
calendar year of operation.
EXPENSE INFORMATION
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THIS TABLE DESCRIBES FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FUNDS.
SHAREHOLDER FEES (fees paid directly from your investment)
GWK GWK
GWK LARGE SMALL
EQUITY CAP CAP
FUND FUND FUND
---- ---- ----
Maximum Sales Charge (Load) Imposed on Purchases None None None
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends None None None
Redemption Fee None None 1%(A)
(A) A redemption fee of 1.00% is charged on the redemption of investments held
for less than 90 days. Redemption fees collected will be paid to the Small Cap
Fund.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
GWK GWK GWK
EQUITY LARGE CAP SMALL CAP
FUND FUND FUND
Management Fees ............................ 1.00% 1.00% 1.25%
Distribution (12b-1) Fees .................. .01% .25% .25%
Other Expenses ............................. .35% .25% .25%
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Total Annual Fund Operating Expenses ....... 1.36%(A) 1.50% 1.75%
====== ====== ======
Fee Waiver and Expense Reimbursements ...... .25%(B) .25%(C)
====== ======
Net Expenses ............................... 1.25%(B) 1.50%(C)
====== ======
(A) The Adviser has voluntarily agreed to waive management fees and/or reimburse
Equity 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.
(B) Pursuant to a written contract between the Adviser and the Large Cap Fund,
the Adviser has contractually 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. The Adviser has agreed to maintain
this expense limitation through February 1, 2001.
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(C) Pursuant to a written contract between the Adviser and the Small Cap Fund,
the Adviser has contractually agreed to waive management fees and/or reimburse
expenses to the extent necessary to limit total Fund operating expenses to 1.50%
of the Fund's average daily net assets. The Adviser has agreed to maintain this
expense limitation through February 1, 2001.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Funds
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:
THE EQUITY FUND
1 Year 3 Years 5 Years 10 Years
$138 $431 $745 $1,635
THE LARGE CAP FUND
1 Year 3 Years 5 Years 10 Years
$--- $--- $--- $-----
THE SMALL CAP FUND
1 Year 3 Years 5 Years 10 Years
$--- $--- $--- $-----
HOW TO PURCHASE SHARES
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Your initial investment in the Funds ordinarily must be at least $2,000
($1,000 for tax-deferred retirement plans). The Funds may, in the Adviser's sole
discretion, accept certain accounts with less than the stated minimum initial
investment. Shares of the Funds 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 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,
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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 Funds by
sending a check and a completed account application form to The Gannett Welsh &
Kotler Funds, P.O. Box 5354, Cincinnati, Ohio 45201-5354. Checks should be made
payable to the appropriate Fund; i.e., the Equity Fund, the Large Cap Fund or
the Small Cap 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 Funds' 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 Funds 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 appropriate 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 The Gannett Welsh & Kotler Funds, P.O. Box 5354,
Cincinnati, Ohio 45201-5354. Checks should be made payable to the appropriate
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
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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.
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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 Funds 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 Funds 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 Funds.
Automatic Investment Plan
-------------------------
You may make automatic monthly investments in the Funds 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 Funds.
HOW TO REDEEM SHARES
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You may redeem shares of the Funds 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
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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.
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
Funds by certified check, government check or wire.
At the discretion of the Trust or the Transfer Agent, corporate investors
and other associations may be required to furnish an appropriate certification
authorizing redemptions to ensure proper authorization. The Trust reserves the
right to require you to close your account if at any time the value of your
shares is less than the minimum amount required by the Trust for your account
(based on actual amounts invested, unaffected by market fluctuations) or such
other minimum amount as the Trust may determine from time to time. After
notification to you of the Trust's intention to close your account, you will be
given thirty days to increase the value of your account to the minimum amount.
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.
For the Small Cap Fund, you will be charged a redemption fee of 1% on the
redemption of investments held for less than 90 days. Redemption fees collected
will be paid to the Small Cap Fund.
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EXCHANGE PRIVILEGE
Shares of any of the Funds may be exchanged for shares of the other series
of the Trust, including the GW&K Government Securities Fund, at net asset value.
Shares of the Funds may also be exchanged at net asset value for shares of the
Short Term Government Income Fund (a series of ______________ 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 Funds 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
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The Funds expect to distribute substantially all of their respective net
investment income, if any, on an annual basis. The Funds expect to distribute
any of their respective 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.
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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
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The Equity Fund has qualified in all prior years and intends to continue to
qualify for, and the Large Cap Fund and the Small Cap Fund intend 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 Funds intend to
distribute substantially all of their respective net investment income and any
realized capital gains to their respective 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 Funds 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 Funds to their
shareholders are taxable to the recipient shareholders as capital gains, without
regard to the length of time a shareholder has held Funds shares. Capital gains
distributions may be taxable at different rates depending on how long the Funds
holds their assets. Redemptions of shares of the Funds 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 Equity Fund exchanged its shares for portfolio securities of GW&K Equity
Fund, L.P. (the "Partnership"), a Delaware limited partnership, after which the
Partnership dissolved and distributed Fund shares received pro rata to its
partners. Following this exchange transaction (the "Exchange"), partners of the
Partnership constituted all of the shareholders of the Fund, except for shares
representing seed capital contributed to the Fund by Harold G. Kotler and Edward
B. White. The Exchange was intended to qualify as a tax-free reorganization,
with no gain or loss recognized by the Partnership or its partners. The Exchange
may result in adverse tax consequences to future shareholders of the Fund. As a
result of this Exchange, the Fund acquired securities that had appreciated in
value from the date they were originally acquired by the Partnership. If these
appreciated securities are subsequently sold by the Fund after the Exchange, the
amount of the gain will be taxable to future shareholders as well as to
shareholders who received Fund shares in the Exchange. The effect of this for
future shareholders would be to immediately tax them on a distribution that
represents a return of the purchase price of their shares rather than an
increase in
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<PAGE>
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 Funds will mail to each of their respective 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 Funds 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 Funds 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 FUNDS
- - ----------------------
The Funds are 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 Funds.
The Trust retains Gannett Welsh & Kotler, Inc. (the "Adviser"), 222
Berkeley Street, Boston, Massachusetts 02116, to manage the Funds' investments.
The Adviser is an independent investment counsel firm that has advised
individual and institutional clients since 1974. The Equity Fund and the Large
Cap Fund pay the Adviser a fee, payable monthly, at the annual rate of 1.00% of
the average value of their daily net assets. The Small Cap Fund pays the Adviser
a fee, payable monthly, at the annual rate of 1.25% 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 Equity Fund's portfolio and
the Small Cap Fund's portfolio. Mr. White joined the Adviser as a Principal and
Senior Vice President in 1989.
Luis M. Raposo, CFA, a Vice President of the Adviser, is primarily
responsible for managing the Large Cap Fund's portfolio. Mr. Raposo, who has 12
years experience in the financial industry, joined the Adviser in 1998.
DISTRIBUTION PLAN
- - -----------------
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Funds
have adopted a plan of distribution (the "Plan") under which the Funds 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 Funds 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;
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<PAGE>
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 Funds;
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 Funds'
shares.
The annual limitation for payment of expenses pursuant to the Plan is .25%
of each respective Funds' average daily net assets. Unreimbursed expenditures
will not be carried over from year to year. Because these fees were paid out of
the Funds' 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 a Fund in accordance with its
terms, such 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 Funds are 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 Funds are calculated by dividing the sum of the
value of the securities held by a Fund plus cash or other assets minus all
liabilities (including estimated accrued expenses) by the total number of shares
outstanding of that Fund, rounded to the nearest cent.
U.S. Government obligations are valued at their most recent bid prices as
obtained from one or more of the major market makers for such securities. Other
portfolio securities are valued as follows: (1) securities which are traded on
stock exchanges or are quoted by NASDAQ are valued at the last reported sale
price as of the close of the regular session of trading on the New York Stock
Exchange on the day the securities are being valued, or, if not traded on a
particular day, at the closing bid price, (2) securities traded in the
over-the-counter market, and which are not quoted by NASDAQ, are valued at the
last sale price (or, if the last sale price is not readily available, at the
last bid price as quoted by brokers that make markets in the securities) as of
the close of the regular session of trading on the New York Stock Exchange on
the day the securities are being 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 Funds will fluctuate with the
value of the securities they hold.
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<PAGE>
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.
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%
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<PAGE>
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%
January 1, 2000 -
March 31, 2000 _____% ______% _____%
Five Years Ended
March 31, 1999
Cumulative Return _____%* ______%* _____%*
August 1, 1991 -
March 31, 1999
Cumulative Return _____%* ______%* _____%*
* Not Annualized
Average Annual Total Returns For Periods Ended March 31, 1999
- - -------------------------------------------------------------
Since Inception
One Year Five Years (August 1, 1991)
-------- ---------- ----------------
The GW&K Equity Fund _____% _____% _____%
Standard & Poor's
500 Index* _____% _____% _____%
Russell 2000 Index** _____% _____% _____%
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 Equity
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
__________________, whose report, along with the Fund's financial statements,
are included in the Statement of Additional Information, which is available upon
request.
Information is not provided for the Large Cap Fund and the Small Cap Fund
because the public offering of the shares of these Funds has not yet commenced
as of the date of this Prospectus.
-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 Funds is included in the Statement of
Additional Information ("SAI"), which is hereby incorporated by reference in its
entirety. Additional information about the Funds' investments is available in
the Funds' annual and semiannual reports to shareholders. In the Funds' annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during the last
fiscal year.
To obtain a free copy of the SAI, the annual and semiannual reports or other
information about the Funds, or to make inquires about the Funds, please call
1-888-GWK-FUND (1-888-495-3863).
Information about the Funds, 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
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<PAGE>
[Logo] The
Gannett
Welsh &
Kotler
Funds
GW&K Equity Fund
GW&K Large Cap Fund
GW&K Small Cap Fund
Prospectus
May __, 2000
No-Load Funds
<PAGE>
THE GANNETT WELSH & KOTLER FUNDS
--------------------------------
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
May __, 2000
GW&K Equity Fund
GW&K Small Cap Fund
GW&K Large Cap 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 GW&K Government Securities Fund
dated February 1, 2000 and of the GW&K Equity Fund, the GW&K Large Cap Fund and
the GW&K Small Cap Fund dated May __, 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 ................................................... 17
TRUSTEES AND OFFICERS .................................................... 19
THE INVESTMENT ADVISER ................................................... 20
DISTRIBUTION PLAN ........................................................ 22
SECURITIES TRANSACTIONS .................................................. 23
PORTFOLIO TURNOVER ....................................................... 24
CALCULATION OF SHARE PRICE ............................................... 25
TAXES .................................................................... 25
REDEMPTION IN KIND ....................................................... 26
HISTORICAL PERFORMANCE INFORMATION ....................................... 26
PRINCIPAL SECURITY HOLDERS ............................................... 29
CUSTODIAN ................................................................ 29
AUDITORS ................................................................. 29
COUNTRYWIDE FUND SERVICES, INC ........................................... 29
ANNUAL REPORT ............................................................ 30
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 four diversified series of
shares to investors: the GW&K Equity Fund, the GW&K Small Cap Fund, the GW&K
Large Cap 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 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
3
<PAGE>
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 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
4
<PAGE>
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 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
5
<PAGE>
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 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
6
<PAGE>
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 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
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<PAGE>
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. 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
8
<PAGE>
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.
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, the GW&K Large Cap Fund and
the GW&K Small Cap 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
9
<PAGE>
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. Neither the GW&K Equity Fund, the GW&K Large Cap
Fund nor the GW&K Small Cap Fund currently intend to invest more than 5% of
their respective net assets in lower-rated securities. If subsequent to its
purchase by a 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 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
10
<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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. 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, the GW&K Large Cap Fund and the GW&K Small Cap Fund
will invest primarily in domestic equity securities, although any one or more
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 for any of the foregoing funds, the Adviser will seek to
invest in securities that have investment characteristics and qualities
comparable to the kinds of domestic securities in which the particular 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.
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<PAGE>
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, the GW&K Large Cap Fund and
the GW&K Small Cap Fund may each purchase warrants and rights, provided that the
Funds do not presently intend to invest more than 5% of their respective 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 a Fund's assets at the time of purchase may be invested in warrants which
are not listed on either the New York Stock Exchange or the American Stock
Exchange.
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS
- - -------------------------------------------------------
The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group for corporate bonds in which the Funds may invest are as follows:
Moody's Investors Service, Inc.
-------------------------------
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
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
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<PAGE>
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Standard & Poor's Ratings Group
-------------------------------
AAA - Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
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.
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C - The rating C is reserved for income bonds on which no interest is being
paid.
D - Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group for preferred stocks in which the Funds may invest are as follows:
Moody's Investors Service, Inc.
-------------------------------
aaa - An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa - An issue which is rated aa is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
a - An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa - An issue which is rated baa is considered to be medium grade, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
ba - An issue which is rated ba is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
b - An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
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.
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<PAGE>
A - An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the diverse
effects of changes in circumstances and economic conditions.
BBB - An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
BB, B and CCC - Preferred stock rated BB, B and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC - The rating CC is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C - A preferred stock rated C is a non-paying issue.
D - A preferred stock rated D is a non-paying issue with the issuer in
default on debt instruments.
INVESTMENT LIMITATIONS
- - ----------------------
The Trust has adopted certain fundamental investment limitations designed
to reduce the risk of an investment in the Funds. These limitations may not be
changed with respect to any 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
17
<PAGE>
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.
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
any 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.
19
<PAGE>
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) 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.
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<PAGE>
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).
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
$1,000 fee for each Board meeting and Audit Committee 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 Small Cap Fund pays the Adviser a fee
computed and accrued daily and paid monthly at an annual rate of 1.25% of its
average daily net assets. The GW&K Equity Fund and the GW&K Large Cap Fund pay
the Adviser a fee computed and accrued daily and paid monthly at an annual rate
of 1.00% of their respective average daily net
21
<PAGE>
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 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 agreements have an initial
term of 2 years and will remain in force 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
agreements 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. Each 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.
22
<PAGE>
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 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.
23
<PAGE>
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.
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.
24
<PAGE>
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.
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
25
<PAGE>
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.
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.
The GW&K Large Cap Fund and the GW&K Small Cap Fund intend to qualify and
the GW&K Equity Fund and the GW&K Government Securities Fund have qualified and
intend 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).
26
<PAGE>
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 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
27
<PAGE>
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 and 10 year periods at the end of the 1, 5 or 10
year periods (or fractional portion thereof)
The calculation of average annual total return assumes the reinvestment of all
dividends and distributions and, with respect to the GW&K Equity Fund, will
include the performance of the Partnership prior to December 10, 1996. With
respect to the GW&K Equity Fund, it should be noted that: (1) the quoted
performance data includes performance for periods before the Fund's registration
statement became effective; (2) the Fund was not registered under the Investment
Company Act of 1940 (the "1940 Act") during such periods and therefore was not
subject to certain investment restrictions imposed by the 1940 Act; and (3) if
the Fund had been registered under the 1940 Act during such periods, performance
may have been adversely affected. If a Fund has been in existence less than one,
five or ten years, the time period since the date of the initial public offering
of shares will be substituted for the periods stated. The average annual total
returns of the GW&K Government Securities Fund for the one year period ended
September 30, 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]
28
<PAGE>
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends d = the maximum offering price per share on
the last day of the period
Solely for the purpose of computing yield, dividend income is recognized by
accruing 1/360 of the stated dividend rate of the security each day that a Fund
owns the security. Generally, interest earned (for the purpose of "a" above) on
debt obligations is computed by reference to the yield to maturity of each
obligation held based on the market value of the obligation (including actual
accrued interest) at the close of business on the last business day prior to the
start of the 30-day (or one month) period for which yield is being calculated,
or, with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest). With respect to the treatment of discount and
premium on mortgage or other receivables-backed obligations which are expected
to be subject to monthly paydowns of principal and interest, gain or loss
attributable to actual monthly paydowns is accounted for as an increase or
decrease to interest income during the period and discount or premium on the
remaining security is not amortized. The yields of the GW&K Equity Fund and the
GW&K Government Securities Fund for September, 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
29
<PAGE>
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.
PRINCIPAL SECURITY HOLDERS
- - --------------------------
As of February 18, 2000, 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 8.0% 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 ____________________ has been selected as independent public
accountants for the Trust for the fiscal year ending September 30, 2000. ______
____________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
30
<PAGE>
services as transfer agent a fee payable monthly at an annual rate of $17 per
account from the GW&K Equity Fund, the GW&K Large Cap Fund and the GW&K Small
Cap Fund, and $21 per account from the GW&K Government Securities Fund,
provided, however, that the minimum fee is $1,000 per month for each Fund. In
addition, the Funds pay out-of-pocket expenses, including but not limited to,
postage, envelopes, checks, drafts, forms, reports, record storage and
communication lines.
The Transfer Agent also provides accounting and pricing services to the
Funds. For calculating daily net asset value per share and maintaining such
books and records as are necessary to enable the Transfer Agent to perform its
duties, each Fund pays the Transfer Agent a fee in accordance with the following
schedule:
Average Monthly Net Assets Monthly Fee
-------------------------- -----------
0 - $ 50,000,000 $2,000
50 - 100,000,000 2,500
100 - 250,000,000 3,000
Over 250,000,000 4,000
In addition, each Fund pays all costs of external pricing services.
In addition, the Transfer Agent is retained to provide administrative
services to the Funds. In this capacity, the Transfer Agent supplies
non-investment related statistical and research data, internal regulatory
compliance services and executive and administrative services. The Transfer
Agent supervises the preparation of tax returns, reports to shareholders of the
Funds, reports to and filings with the Securities and Exchange Commission and
state securities commissions, and materials for meetings of the Board of
Trustees. 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
- - -------------
[to be inserted]
31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston and Commonwealth of Massachusetts, on the 8th
day of March, 2000.
THE GANNETT WELSH & KOTLER FUNDS
By: /s/ Harold G. Kotler
-------------------------------
Harold G. Kotler
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Harold G. Kotler President March 8, 2000
- - ------------------------------ and Trustee
Harold G. Kotler
/s/ Benjamin H. Gannett Treasurer March 8, 2000
- - ------------------------------ and Trustee
Benjamin H. Gannett
Trustee
- - ------------------------------
Arlene Zoe-Aponte Gonzalez*
Trustee By: /s/Tina D. Hosking
- - ------------------------------ ------------------
Morton S. Grossman* Tina D. Hosking
Attorney-in-Fact*
March 8, 2000
Trustee
- - ------------------------------
Timothy P. Neher*
Trustee
- - ------------------------------
Josiah A. Spaulding, Jr.*
Trustee
- - ------------------------------
Allan Tofias*
<PAGE>
THE GANNETT WELSH & KOTLER FUNDS
--------------------------------
PART C. OTHER INFORMATION
-----------------
Item 23. Financial Statements and Exhibits
- - -------- ---------------------------------
(a) (i) Agreement and Declaration of Trust*
(ii) Amendment No. 1 to Agreement & Declaration of Trust*
(b) Bylaws*
(c) Incorporated by reference to Agreement and Declaration of Trust
and Bylaws
(d) (i) Advisory Agreement with Gannett Welsh & Kotler, Inc. with respect
to the GW&K Equity Fund and the GW&K Government Securities Fund*
(ii) Form of Advisory Agreement with Gannett Welsh & Kotler, Inc. with
respect to the GW&K Large Cap Fund and the GW&K Small Cap Fund**
(e) Inapplicable
(f) Inapplicable
(g) Custody Agreement with Investors Bank & Trust Company*
(h) (i) Administration Agreement with Countrywide Fund Services, Inc.*
(ii) Accounting Services Agreement with Countrywide Fund Services,
Inc.*
(iii)Transfer, Dividend Disbursing, Shareholder Service and Plan
Agency Agreement with Countrywide Fund Services, Inc.*
(i) Opinion and Consent of Counsel*
(j) Consent of Independent Public Accountants**
(k) Inapplicable
(l) (i) Agreement Relating to Initial Capital with Harold G. Kotler*
(ii) Agreement Relating to Initial Capital with Edward B. White*
(m) Plan of Distribution Pursuant to Rule 12b-1*
(n) Financial Data Schedules were filed with Registrant's Form N-SAR
(o) Inapplicable
(p) Code of Ethics
- - -------------------------------------
* Incorporated by reference to the Trust's registration statement on Form N-1A.
** To be filed by amendment.
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant
- - ------- -------------------------------------------------------------
None
Item 25. Indemnification
- - -------- ---------------
Article VI of the Registrant's Agreement and Declaration of Trust
provides for indemnification of officers and Trustees as follows:
"Section 6.4 INDEMNIFICATION OF TRUSTEES, OFFICERS, ETC. Subject
to and except as otherwise provided in the Securities Act of
1933, as amended, and the 1940 Act, the Trust shall indemnify
each of its Trustees and officers, including persons who serve at
the Trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a
shareholder, creditor or otherwise (hereinafter referred to as a
"Covered Person") against all liabilities, including but not
limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and expenses, including
reasonable accountants' and counsel fees, incurred by any Covered
Person in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal,
before any court or administrative or legislative body, in which
such Covered Person may be or may have been involved as a party
or otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of being or
having been such a Trustee or officer, director or trustee, and
except that no Covered Person shall be indemnified against any
liability to the Trust or its Shareholders to which such Covered
Person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's
office (disabling conduct). Anything herein contained to the
contrary notwithstanding, no Covered Person shall be indemnified
for any liability to the Trust or its shareholders to which such
Covered Person would otherwise be subject unless (1) a final
decision on the merits is made by a court or other body before
whom the proceeding was brought that the Covered Person to be
indemnified was not liable by reason of disabling conduct or, (2)
in the absence of such a decision, a reasonable determination is
made, based upon a review of the facts, that the Covered Person
was not liable by reason of disabling conduct, by (a) the vote of
a majority of a quorum of Trustees who are neither "interested
persons" of the Company as defined in the Investment Company Act
of 1940 nor parties to the proceeding ("disinterested, non-party
Trustees"), or (b) an independent legal counsel in a written
opinion.
Section 6.5 ADVANCES OF EXPENSES. The Trust shall advance
attorneys' fees or other expenses incurred by a Covered Person in
defending a proceeding, upon the undertaking by or on behalf of
the Covered Person to repay the advance unless it is ultimately
determined that such Covered Person is entitled to
indemnification, so long as one of the following conditions is
met: (i) the Covered Person shall provide security for his
undertaking, (ii) the Trust shall be insured against losses
arising by reason of any lawful advances, or (iii) a majority of
a quorum of the disinterested non-party Trustees of the Trust, or
an independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts (as
opposed to full trial-type inquiry), that there is reason to
believe that the Covered Person ultimately will be found entitled
to indemnification.
Section 6.6 INDEMNIFICATION NOT EXCLUSIVE, ETC. The right of
indemnification provided by this Article VI shall not be
exclusive of or affect any other rights to which any such Covered
Person may be entitled. As used in this Article VI, "Covered
Person" shall include such person's heirs, executors and
administrators; an "interested Covered Person" is one against
whom the action, suit or other proceeding in question or another
action, suit or other proceeding on the same or similar grounds
is then or has been pending or threatened, and a "disinterested"
person is a person against whom none of such actions, suits or
other proceedings or another action, suit or other proceeding on
the same or similar grounds is then or has been pending or
threatened. Nothing contained in this article shall affect any
rights to indemnification to which personnel of the Trust, other
than Trustees and officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the Trust to
purchase and maintain liability insurance on behalf of any such
person."
<PAGE>
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person
in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The Registrant maintains a standard mutual fund and investment
advisory professional and directors and officers liability
policy. The policy will provide coverage to the Registrant, its
Trustees and officers, and Gannett Welsh & Kotler, Inc. (the
"Adviser"). Coverage under the policy will include losses by
reason of any act, error, omission, misstatement, misleading
statement, neglect or breach of duty.
The Advisory Agreement with the Adviser provides that the Adviser
shall not be liable for any action taken, omitted or suffered to
be taken by it in its reasonable judgment, in good faith and
believed by it to be authorized or within the discretion or
rights or powers conferred upon it by the Advisory Agreement, or
in accordance with (or in the absence of) specific directions or
instructions from the Trust, provided, however, that such acts or
omissions shall not have resulted from the Adviser's willful
misfeasance, bad faith or gross negligence, a violation of the
standard of care established by and applicable to the Adviser in
its actions under the Advisory Agreement or breach of its duty or
of its obligations under the Advisory Agreement.
<PAGE>
Item 26. Business and Other Connections of the Investment Adviser
- - ------- --------------------------------------------------------
(a) The Adviser is an independent investment counsel firm that has
advised individual and institutional clients since 1974. The
Adviser was the investment adviser to the GW&K Equity Fund, L.P.,
the predecessor entity to the GW&K Equity Fund.
(b) The directors and officers of the Adviser and any other business,
profession, vocation or employment of a substantial nature
engaged in at any time during the past two years:
(i) Harold G. Kotler - A Principal and President of the Adviser.
President of the Registrant. Formerly, a Principal and the
President of GSD, Inc., the General Partner of the GW&K
Equity Fund, L.P., the predecessor entity to the GW&K Equity
Fund.
(ii) Benjamin H. Gannett - A Principal and Executive Vice
President and Treasurer of the Adviser.
Treasurer of the Registrant. Formerly, a Principal of GSD,
Inc.
(iii)Edward B. White - A Principal and Senior Vice President of
the Adviser.
Formerly, a Principal of GSD, Inc.
(iv) Nancy G. Angell - A Principal and Senior Vice President of
the Adviser.
(v) Jeanne M. Skettino, CFA - A Principal and Senior Vice
President of the Adviser.
(vi) Jackson O. Welsh - Senior Vice President of the Adviser.
(vii) Thomas F. X. Powers - Senior Vice President of the Adviser.
(viii) Thomas J. Duff, CFA - Vice President of the Adviser.
<PAGE>
(ix) John B. Fox - Vice President of the Adviser.
(x) Karen Brack Gadbois, CFA - Vice President of the Adviser.
(xi) James W. Karamourtopoulos - Vice President of the Adviser.
(xii) Janet M. Owens - Vice President of the Adviser.
(xiii) T. Williams Roberts, III - Vice President of the Adviser.
(xiv) Kristen E. Stewart - Vice President of the Adviser.
Item 27. Principal Underwriters
- - -------- ----------------------
(a) Inapplicable
(b) Inapplicable
(c) Inapplicable
Item 28. Location of Accounts and Records
- - -------- --------------------------------
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder will be maintained by the Registrant at its
offices located at 222 Berkeley Street, Boston, Massachusetts 02116 as
well as at the offices of the Registrant's transfer agent located at
312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202.
Item 29. Management Services Not Discussed in Parts A or B
- - ------- -------------------------------------------------
Inapplicable
Item 30. Undertakings
- - -------- ------------
Inapplicable
<PAGE>
INDEX TO EXHIBITS
-----------------
(a)(i) Agreement and Declaration of Trust*
(ii) Amendment No. 1 to Agreement & Declaration of Trust*
(b) Bylaws*
(c) Incorporated by reference to Agreement and Declaration of Trust and
Bylaws
(d)(i) Advisory Agreement with Gannett Welsh & Kotler, Inc. with respect to
the GW&K Equity Fund and the GW&K Government Securities Fund*
(ii) Form of Advisory Agreement with Gannett Welsh & Kotler, Inc. with
respect to the GW&K Large Cap Fund and the GW&K Small Cap Fund**
(e) Inapplicable
(f) Inapplicable
(g) Custody Agreement*
(h)(i) Administration Agreement*
(ii) Accounting Services Agreement*
(iii) Transfer, Dividend Disbursing, Shareholder Service and Plan Agency
Agreement*
(i) Opinion and Consent of Counsel*
(j) Consent of Independent Public Accountants**
(k) Inapplicable
(l)(i) Agreement Relating to Initial Capital*
(ii) Agreement Relating to Initial Capital*
(m) Plan of Distribution Pursuant to Rule 12b-1*
(n)(i) Financial Data Schedules were filed with Registrant's Form N-SAR
(o) Inapplicable
(p) Code of Ethics
- - ----------------------------
* Incorporated by reference to the Trust's registration statement on Form N-1A.
** To be filed by amendment.
