===================================== =====================================
THE GANNETT WELSH & KOTLER FUNDS
222 Berkeley Street [LOGO] THE
Boston, Massachusetts 02116 GANNETT
WELSH &
BOARD OF TRUSTEES KOTLER
Arlene Zoe Aponte-Gonzalez FUNDS
Benjamin H. Gannett
Morton S. Grossman
Harold G. Kotler
Timothy P. Neher --------------------------------
Josiah A. Spaulding, Jr. GW&K EQUITY FUND
Allan Tofias --------------------------------
GW&K GOVERNMENT SECURITIES FUND
INVESTMENT ADVISER --------------------------------
GANNETT WELSH & KOTLER, INC. GW&K LARGE CAP GROWTH FUND
222 Berkeley Street --------------------------------
Boston, Massachusetts 02116 GW&K SMALL CAP GROWTH FUND
(617) 236-8900 --------------------------------
TRANSFER AGENT
INTEGRATED FUND SERVICES, INC. ANNUAL REPORT
P.O. Box 5354 SEPTEMBER 30, 2000
Cincinnati, Ohio 45201-5354
SHAREHOLDER SERVICE
Nationwide: (Toll-Free) 888-GWK-FUND
(888-495-3863)
===================================== =====================================
<PAGE>
LETTER FROM THE PRESIDENT NOVEMBER 15, 2000
================================================================================
Dear Fellow Shareholders,
For the first time since June 1999, when the Federal Reserve initiated its
policy of raising short-term interest rates, a soft landing for the U.S. economy
seems likely. We have seen a slowdown in retail sales and housing starts, a
slight increase in the unemployment rate, and numerous other industrial
indicators hinting that the economy's incredible growth rate might be slowing.
The correction that is occurring in the technology, communications and dot-com
sectors of the stock market contributes to this leveling effect.
The old adage "a rising tide lifts all boats" is no longer applicable to "new
economy" stocks, just as it has not been applicable to "old economy" stocks for
a long time. As Warren Buffet said at the annual meeting of Berkshire Hathaway,
"In the last year the ability to monetize shareholders' ignorance has never been
greater." Participating in the next phase of the bull market will take more care
and discipline and will leave the amateurs in a state of disarray.
If the Federal Reserve is successful in orchestrating a soft landing, financial
markets should respond very favorably. The initial concern was that the economy
was overheating and inflation would cause long rates to rise, thereby negatively
affecting bond values. As we have often discussed in this letter, we do not
believe that inflation is a valid concern but fears of inflation have, in fact,
hurt bond values. The second concern, for corporate bonds in particular, was the
opposite. The economy would slow too much, to the point of recession, so that
leveraged businesses would be vulnerable to financial pressures. Such concerns
have helped create a huge gap between corporate and government bond yields, thus
providing significant investment opportunities.
We do not know whether the Federal Reserve will decrease interest rates in their
upcoming meetings. Their actions, however, make little difference to our
underlying economic assumptions and forecast. We believe that there will be no
undermining inflation, long-term interest rates will continue to fall, the
economy will continue to slow, and the stock market will become more selective.
In this environment, rigorous research and a disciplined process will continue
to provide attractive returns.
Sincerely,
Harold G. Kotler, CFA
President
Gannett Welsh & Kotler
1
<PAGE>
GW&K EQUITY FUND
LETTER TO SHAREHOLDERS NOVEMBER 15, 2000
================================================================================
Dear Fellow Shareholders,
This annual report is the fourth for the GW&K Equity Fund, and it has been
another eventful and volatile year, especially in the stock market. We have
managed to maintain good results throughout the turmoil and have been recognized
for this in a number of national publications, which is discussed later in this
letter.
At the end of the fiscal year for the GW&K Equity Fund, assets stood at a record
$99 million, compared with $61 million a year ago. With net additions of about
$4 million for the past twelve months, the increase in assets was due primarily
to performance.
The Fund's total return (price change and reinvested distributions) for the year
ending September 30, 2000 was 55.53%, ahead of both the Standard & Poor's 500
Index, up 13.30%, and the Russell 2000 Index of smaller companies, which gained
23.60%. The Fund's results were also ahead of the Morningstar Growth and Income
group, whose average return was 12.92%, placing your Fund in the 1st percentile.
Lipper Analytical Services had placed the Fund in the Multi-Cap Core category,
and then changed us to the Multi-Cap Growth group in March 2000. This October,
we were back in the Core group, where we believe we should always be.
Nevertheless, for the year, our return placed us 171st out of the 412 funds in
the Multi-Cap Growth category, or in the 42nd percentile. The Fund maintained
its four-star rating by Morningstar for the three-year period ending September
2000.
For the past quarter, the Fund was up 10.35%, which compares with -0.97% and
1.11% for the S&P 500 and the Russell 2000 indices, respectively. Your Fund's
quarterly return was in the 7th percentile measured against the Morningstar
Growth and Income funds' average return of 2.56% and above the Lipper Multi-Cap
Growth group's average of 2.66%, or in the 9th percentile.
This performance was recognized in the November issue of Smart Money magazine,
as well as in The New York Times and Investor's Business Daily. In each
publication, articles were written on the Fund's investment strategy, which
combines diversification not only across economic sectors, but across market
capitalization as well. Our strategy of seeking out good businesses no matter
what their sector or market capitalization has separated us from the average
fund. In the past quarter, performance was led not by technology stocks, but by
low price to earnings ratio utility, home building, and finance positions.
2
<PAGE>
GW&K EQUITY FUND
LETTER TO SHAREHOLDERS NOVEMBER 15, 2000
================================================================================
Turnover has remained relatively low, although it was the highest in the Fund's
history at 38% for the past year. We repositioned proceeds from reducing
technology holdings throughout the year into real estate, communications, retail
and manufacturing sectors. A capital gain distribution was paid this November
reflecting the profits realized from the repositioning.
With a number of our trading partners exhibiting sluggish economic growth, many
multi-national U.S. companies are reporting slower earnings growth. The Internet
and technology sector's dramatic growth over the past few years led to
expectations that in many instances could not be met. And, we continue to find
electing a new president difficult. These events have led to disappointment in
results and an uneasy feeling that things will get worse before they get better.
This usually means lower stock prices. Accordingly, our cash has been increased
to around 10% of the portfolio as a reserve to make investments in good
businesses when their shares are down. Our plan going forward is therefore
unchanged. We spend our research effort finding businesses that have the highest
likelihood of continued success and then stay with them.
Sincerely,
Edward B. White, CFA, CIC
GW&K Equity Fund
Portfolio Manager
3
<PAGE>
GW&K GOVERNMENT SECURITIES FUND
LETTER TO SHAREHOLDERS NOVEMBER 15, 2000
================================================================================
Dear Fellow Shareholders,
We are pleased to report on the status of the GW&K Government Securities Fund
for the fiscal year ending September 30, 2000. Shares within the Fund have grown
to 3.7 million representing 310 shareholders. The asset value of the Fund has
increased from $29.7 million on September 30, 1999 to $35.0 million on September
30, 2000. This growth continues to come primarily from increased investment
allocation to the Fund for managed accounts at Gannett Welsh & Kotler.
Most bond markets experienced significant volatility over the fiscal year ending
September 30, 2000. The 10-year U.S. Treasury Note, a benchmark for mortgage
pricing, swung from 5.88% on September 30, 1999 to 6.44% on December 31, 1999,
and then back down to 5.80% on September 30, 2000. In general, this type of
volatility leads to uncertainty and weaker bond prices. The declining interest
rate environment experienced over the last few months also facilitated mortgage
re-financing, which led to prepayments, a negative for the premium mortgages
that underlie the Fund. Additionally, over the past year, the housing market
remained strong which also led to negative pressure on prices.
The Fund's net asset value per share on September 30, 2000 was $9.46, $0.30
lower than on September 30, 1999, reflecting the accelerating rate of principal
paydowns of the Fund's premium mortgage-backed securities and the resulting
shortening of their weighted average maturities. The total performance of the
Fund was 4.13% for the fiscal year as compared to 5.84% for the Lehman Brothers
1-3 Year Government Bond Index over the same period.
At Gannett Welsh & Kotler, we continue to search for value within the premium
mortgage-backed sector. In the last year we added $12.5 million in new
mortgage-backed pools. We also bought $2.5 million of a 4-year 7.1% callable
Fannie Mae agency, which is defensive to rising rates and provides a good
current income stream. We will continue to look for attractive mortgage backed
securities and additional securities that meet the maturity and income
requirements for the Fund, while exhibiting reduced prepayments and reduced
extension risk.
Sincerely,
David M. Carter, CFA
GW&K Government Securities Fund
Portfolio Manager
4
<PAGE>
GW&K LARGE CAP GROWTH FUND
LETTER TO SHAREHOLDERS NOVEMBER 15, 2000
================================================================================
Dear Fellow Shareholders,
Our belief is that "earnings drive stock prices" and "the market rewards
companies with sustainable earnings growth through higher valuations."
We attempt to generate superior returns to the Standard & Poor's 500 Index
through fundamental research and investing in a focused portfolio of large cap
stocks. We analyze industries that will be primary beneficiaries of our
investment themes and target the better positioned companies; generally
companies that recognize, and exploit, these macro-economic trends ahead of
their competition.
We invest based on three macro economic themes that we feel are long lasting and
have significant growth opportunities:
o TECHNOLOGY REVOLUTION: beneficiaries of the Internet Explosion;
Emergence of Broadband Communications; and/or Productivity Enablers.
o DEMOGRAPHIC TRENDS: beneficiaries of the Graying of America; Baby
Boomer Effect; and/or Wealth Accumulation/Transfer.
o GLOBAL LEADERS: beneficiaries of Globalization of Economies and Brand
Recognition.
The quarter was a roller coaster ride -- a weak July followed by a strong August
(one of the best in recent history) and a weak September. The net result was
that the S&P 500 Index was down 0.97% and technology heavy NASDAQ Composite
Index was down 7.36%, correcting 10% during the quarter for the fifth time this
year. Market sentiment turned bearish with investors concerned about higher
interest rates, inflation, higher oil prices and the weak Euro depressing U.S.
company sales. Adding to these concerns, several large capitalization companies
pre-announced earnings below expectations sending the market lower and hurting
Industrial, Technology, Retail and Communication stocks in particular.
For the quarter ending September 30, 2000, the total return for the Fund was
0.50%, which compares with -0.97% for the S&P 500 Index, -5.38 for the Russell
1000 Growth index and -0.47% for the Lipper Large-Cap Growth Funds Average. The
Fund's performance benefited from its Finance and Healthcare holdings while
Technology, Communication and Retails detracted from performance.
5
<PAGE>
GW&K LARGE CAP GROWTH FUND
LETTER TO SHAREHOLDERS NOVEMBER 15, 2000
================================================================================
We continue to focus on stocks with above-average sustainable growth while
pruning positions with decelerating growth. In this volatile market filled with
investor concerns, consistent earnings growth is crucial and the market is
unforgiving for any disappointment.
Sincerely,
Luis M. Raposo, CFA
GW&K Large Cap Growth Fund
Portfolio Manager
6
<PAGE>
GW&K SMALL CAP GROWTH FUND
LETTER TO SHAREHOLDERS NOVEMBER 15, 2000
================================================================================
Dear Fellow Shareholders,
We are happy to report on the status of the GW&K Small Cap Growth Fund for the
quarter ending September 30, 2000, the Fund's first active quarter. Shares
within the Fund were 153,893 at quarter end, and the total asset value of the
Fund rose to $1.4 million. The total return of the Fund for the quarter ending
September 30, 2000 was -8.40%, which compares to 1.11% for the Russell 2000
Index. This decline in value is due primarily to poor performance in the
commercial services, communications, and technology sectors.
At quarter end, the Fund held positions in 29 securities with the top five
holdings, in percentage terms, being Devry Inc, MCSI Inc, United Rentals Inc,
The Bisys Group, and Landauer Inc. At Gannett Welsh & Kotler, we seek out
companies with positive growth trends in strong markets, and that exploit the
following macroeconomic trends:
o TECHNOLOGY REVOLUTION: Growth of Electronic Business and Emergence of
Broadband Communications.
o DEMOGRAPHICS: "Graying" of America (e.g. healthcare, pharmaceuticals,
and biotechnology), Growth in Peak Spending Years, and Wealth
Accumulation and Transfer.
o OUTSOURCING: Productivity Enhancements and Cost Savings (e.g.
companies that provide various support services that allow the
contracting companies to focus on their core competencies).
Based on these themes, and using the market capitalization parameters as defined
by the Russell 2000 Index, we narrow down the small capitalization universe of
companies. Next, we use bottom up, fundamental research to find companies that
have strong growth prospects as well as a sustainable business model. At Gannett
Welsh & Kotler, we will continue to search for quality companies with
outstanding potential for growth.
Sincerely,
Edward B. White, CFA, CIC
GW&K Small Cap Growth Fund
Portfolio Manager
7
<PAGE>
GW&K EQUITY FUND
Comparison of the Change in Value since August 1, 1991* of a $10,000 Investment
in the GW&K Equity Fund, the S&P 500 Index and the Russell 2000 Index
[GRAPHIC OMITTED]
GW&K EQUITY FUND $52,629
S&P 500 INDEX $45,296
RUSSELL 2000 INDEX $34,475
---------------------------------
GW&K EQUITY FUND
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 55.53%
5 YEARS 25.33%
SINCE INCEPTION* 19.84%
---------------------------------
Past performance is not predictive of future performance.
*Combines the performance of the Fund, since its commencement of operations on
December 10, 1996, and the performance of GW&K Equity Fund, L.P. for periods
prior to December 10, 1996. It should be noted that: (1) the Fund's quoted
performance data includes performance for periods before the Fund's registration
statement became effective; (2) the Fund was not registered under the Investment
Company Act of 1940 (the 1940 Act) during such 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.
GW&K GOVERNMENT SECURITIES FUND
Comparison of the Change in Value since December 16, 1996* of a $10,000
Investment in the GW&K Government Securities Fund and the Lehman 1-3 Year
Government Bond Index
[GRAPHIC OMITTED]
GW&K GOVERNMENT SECURITIES FUND $12,367
LEHMAN 1-3 YEAR GOVERNMENT BOND INDEX $12,194
---------------------------------
GW&K GOVERNMENT SECURITIES FUND
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 4.13%
SINCE INCEPTION* 5.37%
---------------------------------
Past performance is not predictive of future performance.
*Initial public offering of shares was December 16, 1996.
8
<PAGE>
GW&K LARGE CAP GROWTH FUND
Comparison of the Change in Value since July 1, 2000* of a $10,000 Investment in
the GW&K Large Cap Growth Fund and the S&P 500 Index
[GRAPHIC OMITTED]
GW&K LARGE CAP GROWTH FUND $10,050
S&P 500 INDEX $ 9,903
---------------------------------
GW&K LARGE CAP GROWTH FUND
TOTAL RETURN
SINCE INCEPTION* 0.50%
---------------------------------
Past performance is not predictive of future performance.
*Initial public offering of shares was July 1, 2000.
GW&K SMALL CAP GROWTH FUND
Comparison of the Change in Value since July 1, 2000* of a $10,000 Investment
in the GW&K Small Cap Growth Fund and the Russell 2000 Index
[GRAPHIC OMITTED]
GW&K SMALL CAP GROWTH FUND $ 9,160
RUSSELL 2000 INDEX $10,110
---------------------------------
GW&K SMALL CAP GROWTH FUND
TOTAL RETURN
SINCE INCEPTION* (8.40%)
---------------------------------
Past performance is not predictive of future performance.
*Initial public offering of shares was July 1, 2000.
9
<PAGE>
<TABLE>
<CAPTION>
THE GANNETT WELSH & KOTLER FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2000
===============================================================================================================
GW&K GW&K GW&K
GW&K GOVERNMENT LARGE CAP SMALL CAP
EQUITY SECURITIES GROWTH GROWTH
FUND FUND FUND FUND
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities:
At amortized cost .............................. $ 58,862,820 $ 35,204,530 $ 2,305,928 $ 1,482,018
============ ============ ============ ============
At market value (Note 2) ....................... $ 99,812,468 $ 34,510,101 $ 2,289,937 $ 1,395,696
Cash ............................................. -- -- 7,500 --
Dividends and interest receivable ................ 106,654 419,812 870 1,120
Receivable for principal paydowns ................ -- 108,447 -- --
Receivable for capital shares sold ............... 88,800 66,000 -- --
Organization expenses, net (Note 2) .............. 11,167 11,167 -- --
Receivable from Adviser .......................... -- -- 19,757 20,078
Other assets ..................................... 9,196 2,334 -- --
------------ ------------ ------------ ------------
TOTAL ASSETS ................................... 100,028,285 35,117,861 2,318,064 1,416,894
------------ ------------ ------------ ------------
LIABILITIES
Dividends payable to shareholders ................ -- 40,714 -- --
Payable for capital shares redeemed .............. 1,650 5,000 -- --
Payable for securities purchased ................. -- -- 101,282 --
Payable to affiliates (Note 4) ................... 82,590 22,494 3,162 3,113
Other accrued expenses and liabilities ........... 25,008 28,617 4,249 3,957
------------ ------------ ------------ ------------
TOTAL LIABILITIES .............................. 109,248 96,825 108,693 7,070
------------ ------------ ------------ ------------
NET ASSETS ....................................... $ 99,919,037 $ 35,021,036 $ 2,209,371 $ 1,409,824
============ ============ ============ ============
Net assets consist of:
Paid-in capital .................................. $ 47,493,157 $ 37,095,180 2,249,031 1,517,350
Undistributed net investment income .............. -- 51,638 -- --
Accumulated net realized gains (losses) from
security transactions .......................... 11,476,232 (1,431,353) (23,669) (21,204)
Net unrealized appreciation (depreciation) on
investments (Note 1) ........................... 40,949,648 (694,429) (15,991) (86,322)
------------ ------------ ------------ ------------
Net assets ....................................... $ 99,919,037 $ 35,021,036 $ 2,209,371 $ 1,409,824
============ ============ ============ ============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) ..... 4,708,583 3,702,921 219,856 153,893
============ ============ ============ ============
Net asset value, offering price and redemption
price per share (Note 1) ....................... $ 21.22 $ 9.46 $ 10.05 $ 9.16
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
THE GANNETT WELSH & KOTLER FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2000 (A)
===============================================================================================================
GW&K GW&K GW&K
GW&K GOVERNMENT LARGE CAP SMALL CAP
EQUITY SECURITIES GROWTH GROWTH
FUND FUND FUND FUND
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest ....................................... $ -- $ 2,046,964 $ -- $ --
Dividends ...................................... 955,522 90,211 2,167 2,848
------------ ------------ ------------ ------------
TOTAL INVESTMENT INCOME ...................... 955,522 2,137,175 2,167 2,848
------------ ------------ ------------ ------------
EXPENSES
Investment Advisory fees (Note 4) .............. 824,419 228,618 3,493 3,151
Administration fees (Note 4) ................... 82,436 30,454 2,162 2,113
Accounting services fees (Note 4) .............. 30,000 24,000 6,000 6,000
Custodian fees ................................. 44,086 14,873 176 127
Professional fees .............................. 22,019 22,019 3,000 3,000
Postage and supplies ........................... 30,024 14,646 873 931
Trustees' fees and expenses .................... 17,396 17,396 2,625 2,625
Pricing fees ................................... 1,026 28,933 200 200
Transfer agent fees (Note 4) ................... 12,000 12,000 3,000 3,000
Registration fees .............................. 8,828 7,696 3,943 3,943
Insurance expense .............................. 12,205 6,927 -- --
Reports to shareholders ........................ 11,368 8,042 626 626
Organization expenses (Note 2) ................. 3,350 3,350 -- --
Distribution expenses .......................... -- -- 873 630
------------ ------------ ------------ ------------
TOTAL EXPENSES ............................... 1,099,154 418,954 26,971 26,346
Fees waived and expenses reimbursed
by the Adviser (Note 4) ...................... (68,634) (114,130) (22,605) (22,565)
------------ ------------ ------------ ------------
NET EXPENSES ................................. 1,030,523 304,824 4,366 3,718
------------ ------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ..................... (75,001) 1,832,351 (2,199) (933)
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) from security
transactions ................................. 11,593,607 (21,851) (23,669) (21,204)
Net change in unrealized appreciation/depreciation
on investments ............................... 22,863,110 (557,088) (15,991) (86,322)
------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS ........................ 34,456,717 (578,939) (39,660) (107,526)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS ......................... $ 34,381,716 $ 1,253,412 $ (41,859) $ (108,459)
============ ============ ============ ============
</TABLE>
(A) Except for the GW&K Large Cap Growth Fund and GW&K Small Cap Growth Fund
which represent the period from the initial public offering of shares (July
1, 2000) through September 30, 2000.
See accompanying notes to financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
THE GANNETT WELSH & KOTLER FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
===============================================================================================================
GW&K GW&K
EQUITY FUND GOVERNMENT SECURITIES FUND
----------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) ................... $ (75,001) $ (48,002) $ 1,832,351 $ 1,669,870
Net realized gains (losses) from security
transactions ................................. 11,593,607 1,816,559 (21,851) (89,284)
Net change in unrealized appreciation/depreciation
on investments ............................... 22,863,110 11,651,312 (557,088) (306,966)
------------ ------------ ------------ ------------
Net increase in net assets from operations ..... 34,381,716 13,419,869 1,253,412 1,273,620
------------ ------------ ------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ........... -- (77,789) (1,780,713) (1,669,870)
Distributions in excess of net investment income -- -- (405,203) (748,688)
Return of capital .............................. -- -- -- (86,428)
Distributions from net realized gains .......... (1,725,055) (41,932) -- --
------------ ------------ ------------ ------------
Decrease in net assets from distributions
to shareholders ................................ (1,725,055) (119,721) (2,185,916) (2,504,986)
------------ ------------ ------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ...................... 18,519,421 7,113,037 8,940,182 4,372,991
Net asset value of shares issued in
reinvestment of distributions to shareholders 1,706,053 118,604 1,759,924 2,059,395
Payments for shares redeemed ................... (14,403,952) (6,274,588) (4,488,479) (10,771,178)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from
capital share transactions ..................... 5,821,522 957,053 6,211,627 (4,338,792)
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS ..................................... 38,478,183 14,257,201 5,279,123 (5,570,158)
NET ASSETS
Beginning of year .............................. 61,440,854 47,183,653 29,741,913 35,312,071
------------ ------------ ------------ ------------
End of year .................................... $ 99,919,037 $ 61,440,854 $ 35,021,036 $ 29,741,913
============ ============ ============ ============
UNDISTRIBUTED NET
INVESTMENT INCOME .............................. $ -- $ -- $ 51,638 $ --
============ ============ ============ ============
NUMBER OF SHARES
Sold ........................................... 983,130 525,932 942,385 440,081
Reinvested ..................................... 110,139 8,938 184,518 206,831
Redeemed ....................................... (777,082) (469,830) (471,079) (1,089,713)
------------ ------------ ------------ ------------
Net increase (decrease) in shares outstanding .. 316,187 65,040 655,824 (442,801)
Shares outstanding, beginning of year .......... 4,392,396 4,327,356 3,047,097 3,489,898
------------ ------------ ------------ ------------
Shares outstanding, end of year ................ 4,708,583 4,392,396 3,702,921 3,047,097
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
THE GANNETT WELSH & KOTLER FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
==================================================================================================
GW&K GW&K
LARGE CAP SMALL CAP
GROWTH GROWTH
FUND FUND
-------------------------
PERIOD PERIOD
ENDED ENDED
SEPT. 30, SEPT. 30,
2000(A) 2000(A)
--------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM OPERATIONS
Net investment loss ................................................ $ (2,199) $ (933)
Net realized losses from security transactions ..................... (23,669) (21,204)
Net change in unrealized appreciation/depreciation on investments .. (15,991) (86,322)
---------- ----------
Net decrease in net assets from operations ........................... (41,859) (108,459)
---------- ----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .......................................... 2,266,900 1,518,283
Payments for shares redeemed ....................................... (15,670) --
---------- ----------
Net increase in net assets from capital share transactions ........... 2,251,230 1,518,283
---------- ----------
TOTAL INCREASE IN NET ASSETS ......................................... 2,209,371 1,409,824
NET ASSETS
Beginning of period ................................................ -- --
---------- ----------
End of period ...................................................... $2,209,371 $1,409,824
========== ==========
NUMBER OF SHARES
Sold ............................................................... 221,370 153,893
Redeemed ........................................................... (1,514) --
---------- ----------
Net increase in shares outstanding ................................. 219,856 153,893
Shares outstanding, beginning of period ............................ -- --
---------- ----------
Shares outstanding, end of period .................................. 219,856 153,893
========== ==========
</TABLE>
(A) Represents the period from the initial public offering of shares (July 1,
2000) through September 30, 2000.
See accompanying notes to financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
THE GANNETT WELSH & KOTLER FUNDS
GW&K EQUITY FUND
FINANCIAL HIGHLIGHTS
=============================================================================================================
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
2000 1999 1998 1997(A)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD:
Net asset value at beginning of period ......... $ 13.99 $ 10.90 $ 12.93 $ 10.00
---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income (loss) ................. (0.02) (0.01) 0.03 0.03
Net realized and unrealized gains (losses)
on investments ............................. 7.64 3.13 (0.80) 2.90
---------- ---------- ---------- ----------
Total from investment operations ............... 7.62 3.12 (0.77) 2.93
---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income ......... -- (0.02) (0.04) --
Distributions from net realized gains ........ (0.39) (0.01) (1.22) --
---------- ---------- ---------- ----------
Total distributions ............................ (0.39) (0.03) (1.26) --
---------- ---------- ---------- ----------
Net asset value at end of period ............... $ 21.22 $ 13.99 $ 10.90 $ 12.93
========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL DATA:
Total return ................................... 55.53% 28.62% (5.99)% 29.30%(C)
========== ========== ========== ==========
Net assets at end of period (000's) ............ $ 99,919 $ 61,441 $ 47,184 $ 37,347
========== ========== ========== ==========
Ratio of net expenses to average net assets(B) . 1.25% 1.25% 1.25% 1.25%(D)
Ratio of net investment income (loss) to
average net assets ........................... (0.09)% (0.08)% 0.27% 0.43%(D)
Portfolio turnover rate ........................ 38% 28% 30% 13%(D)
</TABLE>
(A) Represents the period from the initial public offering of shares (December
10, 1996) through September 30, 1997.
(B) Absent fee waivers by the Adviser, the ratios of expenses to average net
assets would have been 1.33%, 1.36%, 1.41% and 1.51% (D) for the periods
ended September 30, 2000, 1999, 1998 and 1997, respectively (Note 4).
(C) Not annualized.
(D) Annualized.
See accompanying notes to financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
THE GANNETT WELSH & KOTLER FUNDS
GW&K GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
=============================================================================================================
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
2000 1999 1998 1997(A)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD:
Net asset value at beginning of period ......... $ 9.76 $ 10.12 $ 10.23 $ 10.00
---------- ---------- ---------- ----------
Income from investment operations:
Net investment income ........................ 0.57 0.45 0.56 0.50
Net realized and unrealized gains (losses)
on investments ............................. (0.18) (0.09) (0.05) 0.23
---------- ---------- ---------- ----------
Total from investment operations ............... 0.39 0.36 0.51 0.73
---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income ......... (0.56) (0.45) (0.56) (0.50)
Distributions in excess of net investment income (0.13) (0.24) (0.04) --
Return of capital ............................ -- (0.03) -- --
Distributions from net realized gains ........ -- -- (0.02) --
---------- ---------- ---------- ----------
Total distributions ............................ (0.69) (0.72) (0.62) (0.50)
---------- ---------- ---------- ----------
Net asset value at end of period ............... $ 9.46 $ 9.76 $ 10.12 $ 10.23
========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL DATA:
Total return ................................... 4.13% 3.68% 5.07% 7.50%(C)
========== ========== ========== ==========
Net assets at end of period (000's) ............ $ 35,021 $ 29,742 $ 35,312 $ 24,855
========== ========== ========== ==========
Ratio of net expenses to average net assets(B) . 1.00% 1.00% 1.00% 0.97%(D)
Ratio of net investment income to average
net assets ................................... 6.01% 6.62% 5.40% 6.19%(D)
Portfolio turnover rate ........................ 26% 27% 37% 44%(D)
</TABLE>
(A) Represents the period from the initial public offering of shares (December
16, 1996) through September 30, 1997.
(B) Absent fee waivers by the Adviser, the ratios of expenses to average net
assets would have been 1.37%, 1.31%, 1.36% and 1.47% (D) for the periods
ended September 30, 2000, 1999, 1998 and 1997, respectively (Note 4).
(C) Not annualized.
(D) Annualized.
See accompanying notes to financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
THE GANNETT WELSH & KOTLER FUNDS
FINANCIAL HIGHLIGHTS
======================================================================================================
GW&K GW&K
LARGE CAP SMALL CAP
GROWTH GROWTH
FUND FUND
-----------------------------
PERIOD PERIOD
ENDED ENDED
SEPT. 30, SEPT. 30,
2000(A) 2000(A)
------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD:
Net asset value at beginning of period ............................. $ 10.00 $ 10.00
---------- ----------
Income (loss) from investment operations:
Net investment loss .............................................. (0.01) (0.01)
Net realized and unrealized gains (losses) on investments ........ 0.06 (0.83)
---------- ----------
Total from investment operations ................................... 0.05 (0.84)
---------- ----------
Net asset value at end of period ................................... $ 10.05 $ 9.16
========== ==========
RATIOS AND SUPPLEMENTAL DATA:
Total return ....................................................... 0.50%(C) (8.40)%(C)
========== ==========
Net assets at end of period (000's) ................................ $ 2,209 $ 1,410
========== ==========
Ratio of net expenses to average net assets(B) ..................... 1.23%(D) 1.48%(D)
Ratio of net investment income to average net assets ............... (0.62)%(D) (0.37)%(D)
Portfolio turnover rate............................................. 38%(D) 21%(D)
</TABLE>
(A) Represents the period from the initial public offering of shares (July 1,
2000) through September 30, 2000.
(B) Absent fee waivers and expenses reimbursed by the Adviser, the ratios of
expenses to average net assets would have been 7.61% (D) and 10.33% (D) for
the period ended September 30, 2000 for the GW&K Large Cap Growth Fund and
the GW&K Small Cap Growth Fund, respectively (Note 4).
(C) Not annualized.
(D) Annualized.
See accompanying notes to financial statements.
16
<PAGE>
THE GANNETT WELSH & KOTLER FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
================================================================================
1. ORGANIZATION
The GW&K Equity Fund and GW&K Government Securities Fund (individually, a Fund,
and collectively, the Funds) are each a diversified series of shares of The
Gannett Welsh & Kotler Funds (the Trust). The GW&K Large Cap Growth Fund and
GW&K Small Cap Growth Fund (individually, a Fund, and collectively, the Funds)
are each a non-diversified series of shares of the Trust. The Trust is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Trust was established as a Massachusetts
business trust under a Declaration of Trust dated April 24, 1996. The
Declaration of Trust, as amended, permits the Trustees to issue an unlimited
number of shares of each Fund.
The Trust commenced operations on October 17, 1996, when shares of the GW&K
Equity Fund and GW&K Government Securities Fund were issued at $10.00 per share
to affiliates of Gannett Welsh & Kotler, Inc., the Funds' investment adviser, in
order to provide the initial capitalization of the Trust.
On December 10, 1996, the GW&K Equity Fund, prior to offering shares to the
public, exchanged its shares for portfolio securities of GW&K Equity Fund, L.P.
(the Partnership) as part of a tax-free reorganization of the Partnership. The
GW&K Equity Fund acquired the securities of the Partnership at the Partnership's
cost basis and holding periods, thus resulting in the acquisition of securities
with unrealized appreciation of $6,218,882 as of December 10, 1996. Subsequent
to the exchange transaction, the Fund began its initial public offering of
shares.
The GW&K Government Securities Fund began its initial public offering of shares
on December 16, 1996. The GW&K Large Cap Growth Fund and the GW&K Small Cap
Growth Fund began their initial public offering of shares on July 1, 2000.
The GW&K Equity Fund seeks long-term total return, from a combination of capital
growth and growth of income, by investing in a diversified portfolio of equity
securities.
The GW&K Government Securities Fund seeks total return, through both income and
capital appreciation. The Fund invests primarily in obligations issued or
guaranteed as to principal and interest by the United States Government, its
agencies or instrumentalities.
The GW&K Large Cap Growth Fund seeks long-term growth of capital by investing in
a portfolio of large capitalization equity securities.
The GW&K Small Cap Growth Fund seeks long-term growth of capital by investing in
a portfolio of small capitalization equity securities.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Funds' significant accounting policies:
Security valuation -- The Funds' portfolio securities are valued as of the close
of business of the regular session of trading on the New York Stock Exchange
(normally 4:00 p.m., Eastern time). U.S. Government obligations, mortgage-backed
securities and municipal obligations are generally valued at their most recent
bid prices as obtained from one or more of the major market makers for such
securities or are valued by an independent pricing service based on estimates of
market values obtained from yield data relating to instruments or securities
with similar characteristics. Portfolio securities traded on stock exchanges or
quoted by NASDAQ are valued at the closing sales price or, if not traded on a
particular day, at the closing bid price. Securities traded in the
over-the-counter market, and which are not quoted by NASDAQ, are valued at the
last sales price, if available, otherwise, at the last quoted bid price.
Securities for which market quotations are not readily available are valued at
their fair value as determined in good faith in accordance with consistently
applied procedures approved by and under the general supervision of the Board of
Trustees.
Share valuation -- The net asset value per share of each Fund is calculated
daily by dividing the total value of each Fund's assets, less liabilities, by
the number of shares outstanding. The offering price and redemption price per
share of each Fund is equal to the net asset value per share.
17
<PAGE>
Investment income -- Interest income is recognized on the accrual basis and
includes, where applicable, the amortization of premium or discount. Dividend
income is recorded on the ex-dividend date.
Distributions to shareholders -- Dividends arising from net investment income
are declared daily and paid on the last business day of each month to
shareholders of the GW&K Government Securities Fund. Dividends arising from net
investment income, if any, are declared and paid annually to shareholders of the
GW&K Equity Fund, GW&K Large Cap Growth Fund and GW&K Small Cap Growth Fund.
With respect to each Fund, net realized short-term capital gains, if any, may be
distributed throughout the year and net realized long-term capital gains, if
any, are distributed at least once each year. Income dividends and capital gain
distributions are determined in accordance with income tax regulations.
Securities transactions -- Security transactions are accounted for on the trade
date. Securities sold are determined on a specific identification basis.
Securities traded on a to-be-announced basis -- The GW&K Government Securities
Fund occasionally trades portfolio securities on a to-be-announced (TBA) basis.
In a TBA transaction, the Fund has committed to purchase securities for which
all specific information is not yet known at the time of the trade, particularly
the face amount in mortgage-backed securities transactions. Securities purchased
on a TBA basis are not settled until they are delivered to the Fund, normally 15
to 45 days later. These transactions are subject to market fluctuations and
their current value is determined in the same manner as for other portfolio
securities. When effecting such transactions, assets of a dollar amount
sufficient to make payment for the portfolio securities to be purchased are
placed in a segregated account on the trade date.
Organizational expenses -- Expenses of organization, net of certain expenses
paid by the Adviser, have been capitalized by the GW&K Equity Fund and the GW&K
Government Securities Fund and are being amortized on a straight-line basis over
five years.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is each Fund's policy to comply with the special
provisions of the Internal Revenue Code applicable to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so qualifies
and distributes at least 90% of its taxable net income, the Fund (but not the
shareholders) will be relieved of federal income tax on the income distributed.
Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also each Fund's intention to declare as dividends
in each calendar year at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains (earned during the
twelve months ending October 31) plus undistributed amounts from prior years.
The following information is based upon the federal income tax cost of portfolio
investments as of September 30, 2000:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
GW&K GW&K GW&K
GW&K GOVERNMENT LARGE CAP SMALL CAP
EQUITY SECURITIES GROWTH GROWTH
FUND FUND FUND FUND
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross unrealized appreciation .................. $ 45,870,388 $ 27,496 $ 138,587 $ 96,544
Gross unrealized depreciation .................. (4,966,440) (721,925) (170,867) (182,866)
------------ ------------ ------------ ------------
Net unrealized appreciation (depreciation) ..... $ 40,903,948 $ (694,429) $ (32,280) $ (86,322)
============ ============ ============ ============
Federal income tax cost ........................ $ 58,908,520 $ 35,204,530 $ 2,322,217 $ 1,482,018
============ ============ ============ ============
-------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
The difference between the federal income tax cost of portfolio investments and
financial statement cost for the GW&K Equity Fund and the GW&K Large Cap Growth
Fund is due to certain timing differences in the recognition of capital losses
under income tax regulations and generally accepted accounting principles.
As of September 30, 2000, the GW&K Government Securities Fund had capital loss
carryforwards for federal income tax purposes of $1,409,502, none of which
expire prior to September 30, 2006. In addition, the Fund elected to defer until
its subsequent tax year $21,851 of net realized capital losses incurred after
October 31, 1999. The GW&K Large Cap Growth Fund and the GW&K Small Cap Growth
Fund had capital loss carryforwards for federal income tax purposes of $7,380
and $21,204, respectively, none of which expire prior to September 30, 2008.
These capital loss carryforwards and "post-October" losses may be utilized in
future years to offset net realized capital gains, if any, prior to distribution
to shareholders.
Reclassification of capital accounts -- As of September 30, 2000, the GW&K
Equity Fund, GW&K Large Cap Growth Fund and GW&K Small Cap Growth Fund
reclassified $75,001, $2,199 and $933, respectively, of net investment losses to
paid-in capital on the Statements of Assets and Liabilities. The GW&K Government
Securities Fund reclassified $405,203 of distributions in excess of net
investment income to accumulated net realized losses from security transactions.
Such reclassifications, the result of permanent differences between financial
statement and income tax reporting requirements, have no effect on each Fund's
net assets or net asset value per share.
3. INVESTMENT TRANSACTIONS
For the period ended September 30, 2000, cost of purchases and proceeds from
sales and maturities of investment securities, other than short-term
investments, amounted to $29,640,476 and $28,370,938, respectively, for the GW&K
Equity Fund, $15,066,508 and $7,436,431, respectively, for the GW&K Government
Securities Fund, $2,164,540 and $150,890, respectively, for the GW&K Large Cap
Growth Fund and $1,367,672 and $54,558, respectively, for the GW&K Small Cap
Growth Fund.
4. TRANSACTIONS WITH AFFILIATES
The President and the Treasurer of the Trust are also principals of Gannett
Welsh & Kotler, Inc. (the Adviser), the Trust's investment adviser. Certain
other officers of the Trust are also officers of Integrated Fund Services, Inc.
(IFS), the Trust's administrative services agent, shareholder servicing and
transfer agent, and accounting services agent or IFS Fund Distributors, Inc.
(the Underwriter), the Trust's principal underwriter for each fund.
ADVISORY AGREEMENT
Each Fund's investments are managed by the Adviser pursuant to the terms of an
Advisory Agreement. The GW&K Equity Fund and GW&K Large Cap Growth Fund each pay
the Adviser a fee, which is computed and accrued daily and paid monthly, at an
annual rate of 1.00% of average daily net assets. The GW&K Government Securities
Fund and GW&K Small Cap Growth Fund each pay the Advisor a fee, which is
computed and accrued daily and paid monthly, at an annual rate of 0.75% and
1.25%, respectively, of average daily net assets.
In order to reduce the operating expenses of the GW&K Equity Fund, GW&K
Government Securities Fund GW&K Large Cap Growth Fund and GW&K Small Cap Growth
Fund for the period ended September 30, 2000, the Adviser voluntarily waived
advisory fees of $68,634, $114,130, $3,493 and $3,151, respectively. The Adviser
also reimbursed other operating expenses of the GW&K Large Cap Growth Fund and
the GW&K Small Cap Growth Fund in the amount of $19,112 and $19,414,
respectively.
ADMINISTRATION AGREEMENT
Under the terms of an Administration Agreement, IFS supplies executive and
regulatory services, supervises the preparation of tax returns, and coordinates
the preparation of reports to shareholders and reports to and filings with the
Securities and Exchange Commission and state securities authorities. For these
services, IFS receives a monthly fee from each Fund at the annual rate of 0.10%
on each Fund's respective average daily net assets up to $100 million; 0.075% on
such net assets from $100 million to $200 million; and 0.05% on such net assets
in excess of $200 million, subject to a $1,000 minimum monthly fee from each
Fund.
19
<PAGE>
TRANSFER AGENT AGREEMENT
Under the terms of a Transfer, Dividend Disbursing, Shareholder Service and Plan
Agency Agreement, IFS maintains the records for each shareholder's account,
answers shareholders' inquiries concerning their accounts, processes purchases
and redemptions of each Fund's shares, acts as dividend and distribution
disbursing agent and performs other shareholder service functions. For these
services, IFS receives a monthly fee at an annual rate of $17 per shareholder
account from the GW&K Equity Fund, GW&K Large Cap Growth Fund and GW&K Small Cap
Growth Fund and $21 per shareholder account from the GW&K Government Securities
Fund, subject to a $1,000 minimum monthly fee for each Fund. In addition, each
Fund pays IFS out-of-pocket expenses including, but not limited to, postage and
supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of an Accounting Services Agreement, IFS calculates the daily
net asset value per share and maintains the financial books and records of each
Fund. For these services, IFS receives a monthly fee, based on current asset
levels, of $2,500 from GW&K Equity Fund and $2,000 from each of the GW&K
Government Securities Fund, GW&K Large Cap Growth Fund and GW&K Small Cap Growth
Fund. In addition, each Fund pays IFS certain out-of-pocket expenses incurred by
IFS in obtaining valuations of such Fund's portfolio securities.
UNDERWRITING AGREEMENT
Under the terms of an Underwriting Agreement, effective May 16, 2000, IFS Fund
Distributors, Inc. (Underwriter) serves as principal underwriter for the Funds
and , as such, is the exclusive agent for the distribution of shares of each
Fund. For these services, the Underwriter receives a monthly fee of $500 per
Fund. The Underwriter is an affiliate of IFS by reason of common ownership.
PLAN OF DISTRIBUTION
The Trust has a Plan of Distribution (the Plan) under which each Fund may
directly incur or reimburse the Adviser for expenses related to the distribution
and promotion of capital shares. The annual limitation for payment of such
expenses under the Plan is 0.25% of the average daily net assets of each Fund.
20
<PAGE>
GW&K EQUITY FUND
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2000
================================================================================
MARKET
SHARES COMMON STOCKS -- 91.4% VALUE
--------------------------------------------------------------------------------
BASIC MATERIALS -- 1.2%
105,000 Universal Forest Products, Inc. .................. $ 1,199,297
------------
CONSUMER, CYCLICAL-- 13.7%
125,000 DeVry, Inc. * .................................... $ 4,703,125
130,000 Extended Stay America, Inc. * .................... 1,722,500
38,000 Insight Communications Company, Inc. * ........... 603,250
30,000 Lowe's Companies, Inc. ........................... 1,346,250
27,000 May Department Stores Company .................... 553,500
63,000 PROVANT, Inc. * .................................. 441,000
125,000 Standard Pacific Corp. ........................... 2,250,000
70,000 Staples, Inc. * .................................. 993,125
43,000 TJX Companies, Inc. .............................. 967,500
------------
$ 13,580,250
------------
CONSUMER, NON-CYCLICAL -- 6.9%
5,000 General Mills, Inc. .............................. $ 177,500
20,000 Merck & Co., Inc. ................................ 1,488,750
50,000 NCO Group, Inc. * ................................ 593,750
48,000 Panamerican Beverages, Inc. ...................... 816,000
40,000 PepsiCo, Inc. .................................... 1,840,000
45,000 Pfizer, Inc. ..................................... 2,022,188
------------
$ 6,938,188
------------
ENERGY-- 10.5%
71,944 AES Corp. * ...................................... $ 4,928,164
43,000 Independent Energy Holdings plc - ADR * .......... 43,000
44,000 Noble Affiliates, Inc. ........................... 1,633,500
80,000 Questar Corp. .................................... 2,225,000
28,000 Royal Dutch Petroleum Company .................... 1,678,250
------------
$ 10,507,914
------------
FINANCIAL SERVICES -- 15.3%
37,000 Bank of New York Company, Inc. ................... $ 2,074,312
20,000 BISYS Group, Inc. * .............................. 1,546,250
43,000 Boston Properties, Inc. .......................... 1,846,312
63,000 Capital One Financial Corp. ...................... 4,413,938
40,000 Citigroup, Inc. .................................. 2,162,500
48,000 Equity Office Properties Trust ................... 1,491,000
25,000 MBIA, Inc. ....................................... 1,778,125
------------
$ 15,312,437
------------
HEALTH CARE PRODUCTS & SERVICES -- 3.8%
25,000 Cardinal Health, Inc. ............................ $ 2,204,688
40,000 IMS Health Inc. .................................. 830,000
7,000 Techne Corp. * ................................... 784,000
------------
$ 3,818,688
------------
21
<PAGE>
GW&K EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
================================================================================
MARKET
SHARES COMMON STOCKS -- 91.4% (CONTINUED) VALUE
--------------------------------------------------------------------------------
INDUSTRIAL -- 7.2%
30,000 General Electric Company ......................... $ 1,730,625
60,000 General Motors Corp. - Class H ................... 2,230,800
36,000 Tyco International, Ltd. ......................... 1,867,500
55,000 United Rentals, Inc. * ........................... 1,326,875
------------
$ 7,155,800
------------
TECHNOLOGY -- 22.7%
22,000 ACT Manufacturing, Inc. * ........................ $ 1,160,500
18,000 Analog Devices, Inc. * ........................... 1,486,125
45,000 Cognex Corp. * ................................... 1,774,688
30,000 Dell Computer Corp. * ............................ 924,375
40,000 EMC Corp. * ...................................... 3,965,000
67,500 iGATE Capital Corp. * ............................ 362,812
60,000 Oracle Corp. * ................................... 4,725,000
27,000 SDL, Inc. * ...................................... 8,316,000
------------
$ 22,714,500
------------
UTILITIES-- 10.1%
48,000 Enron Corp. ...................................... $ 4,206,000
25,000 Focal Communications Corp. * ..................... 385,938
25,000 Qwest Communications International, Inc. * ....... 1,201,561
53,000 Reliant Energy, Inc. ............................. 2,464,500
60,000 WorldCom, Inc. * ................................. 1,822,500
------------
$ 10,080,499
------------
TOTAL COMMON STOCKS-- 91.4% (Cost $50,357,925) ... $ 91,307,573
------------
================================================================================
MARKET
SHARES CASH EQUIVALENTS -- 8.5% VALUE
--------------------------------------------------------------------------------
8,504,895 Merrimac Cash Fund-- Institutional Class
(Cost $8,504,895) .............................. $ 8,504,895
------------
TOTAL INVESTMENTS AT VALUE-- 99.9%
(Cost $58,862,820) ............................. $ 99,812,468
OTHER ASSETS IN EXCESS OF LIABILITIES-- 0.1% ..... 106,569
------------
NET ASSETS -- 100.0% ............................. $ 99,919,037
============
* Non-income producing security.
ADR - American Depository Receipt.
See accompanying notes to financial statements.
22
<PAGE>
GW&K GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2000
================================================================================
PAR MARKET
VALUE MORTGAGE-BACKED SECURITIES -- 96.1% VALUE
--------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION -- 34.6%
$ 136,557 7.50%, 02/01/22 .................................. $ 137,581
118,747 8.00%, 11/01/10 .................................. 120,046
656,812 8.50%, 03/01/08 thru 09/01/17 .................... 671,714
612,483 8.75%, 10/01/08 thru 10/01/17 .................... 625,175
925,922 9.00%, 06/01/08 thru 06/01/21 .................... 951,214
1,612,032 9.25%, 10/01/08 thru 12/01/10 .................... 1,655,142
1,625,582 9.50%, 05/01/05 thru 02/01/21 .................... 1,668,647
1,378,964 9.75%, 04/01/08 thru 02/01/18 .................... 1,427,186
1,799,872 10.00%, 01/01/01 thru 11/01/20 ................... 1,879,775
1,056,851 10.25%, 04/01/09 thru 09/01/12 ................... 1,106,595
315,140 10.50%, 10/01/00 thru 07/01/20 ................... 334,420
309,628 10.75%, 07/01/10 thru 04/01/11 ................... 329,221
58,768 11.00%, 01/01/01 thru 01/01/19 ................... 62,849
303,904 11.25%, 09/01/09 thru 07/01/13 ................... 323,943
154,799 11.50%, 09/01/11 thru 06/01/19 ................... 166,970
19,482 11.75%, 02/01/11 thru 07/01/13 ................... 20,948
120,008 12.00%, 05/01/10 thru 03/01/15 ................... 129,758
346,152 12.50%, 01/01/10 thru 05/01/15 ................... 378,953
96,664 13.50%, 01/01/11 ................................. 105,726
15,680 14.50%, 12/01/10 ................................. 17,125
------------ ------------
$ 11,664,047 TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION ..... $ 12,112,988
------------ (Amortized Cost $12,368,845) ------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 47.4%
$ 2,500,000 7.10%, 10/18/04 .................................. $ 2,504,550
210,728 7.50%, 02/01/14 .................................. 211,847
205,918 8.00%, 08/01/19 .................................. 209,023
811,392 8.50%, 12/01/08 thru 03/01/22 .................... 825,430
373,814 8.75%, 08/01/07 thru 08/01/17 .................... 383,026
924,858 9.00%, 03/01/10 thru 09/01/24 .................... 950,411
151,304 9.25%, 12/01/15 .................................. 155,536
1,653,595 9.50%, 04/01/05 thru 01/01/19 .................... 1,729,279
246,883 9.75%, 03/01/06 thru 02/01/19 .................... 255,558
4,859,022 10.00%, 04/01/14 thru 06/01/30 ................... 5,045,886
32,758 10.25%, 05/01/09 thru 03/01/16 ................... 34,637
973,031 10.50%, 02/01/01 thru 09/01/20 ................... 1,008,499
43,90 10.75%, 03/01/14 ................................. 47,106
1,181,277 11.00%, 07/01/15 thru 11/01/20 ................... 1,272,605
71,918 11.25%, 10/01/15 thru 12/01/15 ................... 78,111
184,202 11.50%, 05/01/19 ................................. 199,802
180,839 11.75%, 04/01/12 thru 02/01/14 ................... 196,303
1,342,590 12.00%, 03/01/13 thru 10/01/15 ................... 1,467,846
6,015 12.25%, 05/001/10 ................................ 6,502
29,867 13.50%, 12/01/14 ................................. 33,159
------------ ------------
$ 15,983,921 TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION ...... $ 16,615,116
------------ (Amortized Cost $16,874,597) ------------
23
<PAGE>
GW&K GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
================================================================================
PAR MARKET
VALUE MORTGAGE-BACKED SECURITIES -- 96.1% (CONTINUED) VALUE
--------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 12.9%
$ 96,197 6.00%, 04/15/29 .................................. $ 90,606
354,440 7.00%, 05/15/23 .................................. 350,562
163,603 8.75%, 11/15/08 .................................. 167,352
360,090 9.00%, 11/15/19 thru 06/15/21 .................... 376,913
93,922 9.25%, 09/15/09 .................................. 97,243
690,512 9.50%, 06/15/09 thru 08/20/19 .................... 719,990
1,813,817 10.00%, 03/15/01 thru 10/15/21 ................... 1,899,223
234 10.25%, 02/15/01 ................................. 234
423,156 10.50%, 02/20/05 thru 10/20/19 ................... 452,395
4,940 11.00%, 11/20/15 ................................. 5,309
690 11.25%, 04/15/01 ................................. 692
147,766 11.50%, 01/20/13 thru 08/20/19 ................... 160,223
63,456 11.75%, 05/15/04 thru 08/15/13 ................... 67,710
14,109 12.00%, 08/15/13 thru 09/15/14 ................... 15,577
100,813 13.00%, 01/15/11 thru 01/15/15 ................... 112,222
------------ ------------
$ 4,327,745 TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ... $ 4,516,251
------------ (Amortized Cost $4,656,046) ------------
OTHER MORTGAGE-BACKED SECURITIES -- 1.2%
$ 28,545 Arkansas Development Finance Authority
REMIC #93-C, 8.20%, 02/15/14 ..................... $ 28,546
395,000 Delta Funding Home Equity Loan Trust #96-1-A7,
------------ 7.95%, 06/25/27 .................................. 388,581
------------
$ 423,545 TOTAL OTHER MORTGAGE-BACKED SECURITIES ........... $ 417,127
------------ (Amortized Cost $448,532) ------------
$ 32,399,258 TOTAL MORTGAGE-BACKED SECURITIES ................. $ 33,661,482
------------ (Amortized Cost $34,348,020) ------------
================================================================================
PAR MARKET
VALUE MUNICIPAL OBLIGATIONS -- 1.5% VALUE
--------------------------------------------------------------------------------
$ 300,000 Texas St. HFA SFM Rev. Bond, 8.05%, 12/01/01 ..... $ 303,984
207,048 Mississippi Housing Rev. Bond, 9.15%, 09/15/14 ... 211,526
------------ ------------
$ 507,048 TOTAL MUNICIPAL OBLIGATIONS ...................... $ 515,510
------------ (Amortized Cost $523,401) ------------
24
<PAGE>
GW&K GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
================================================================================
MARKET
SHARES CASH EQUIVALENTS -- 0.9% VALUE
--------------------------------------------------------------------------------
$ 333,109 Merrimac Cash Fund-- Institutional Class
(Cost $333,109) .................................. $ 333,109
------------
TOTAL INVESTMENT SECURITIES-- 98.5%
(Cost $35,204,530) ............................... $ 34,510,101
------------
OTHER ASSETS IN EXCESS OF LIABILITIES-- 1.5% ..... 510,935
------------
NET ASSETS -- 100% ............................... $ 35,021,036
============
See accompanying notes to financial statements.
25
<PAGE>
GW&K LARGE CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2000
================================================================================
MARKET
SHARES COMMON STOCKS -- 89.3% VALUE
--------------------------------------------------------------------------------
BASIC MATERIALS-- 3.2%
1,200 Applied Materials * .............................. $ 71,175
------------
CONSUMER, CYCLICAL -- 12.4%
3,600 AT&T Corporation - Liberty Media Group - Class A * $ 64,800
2,000 Bed Bath & Beyond, Inc. * ........................ 48,781
1,200 Comcast Corp. - Class A * ........................ 49,125
1,150 Home Depot, Inc. ................................. 61,022
3,500 Staples, Inc. * .................................. 49,656
------------
$ 273,384
------------
CONSUMER, NON-CYCLICAL -- 4.1%
1,300 CVS Corp. ........................................ $ 60,206
700 Schering-Plough Corporation ...................... 32,550
------------
$ 92,756
------------
FINANCIAL SERVICES -- 3.9%
950 Associates First Capital Corp. ................... $ 36,100
933 Citigroup, Inc. .................................. 50,440
------------
$ 86,540
------------
HEALTH CARE PRODUCTS & SERVICES -- 14.1%
1,400 Amgen * .......................................... $ 97,759
700 Cardinal Health, Inc. ............................ 61,731
1,050 MedImmune, Inc. * ................................ 81,112
600 PE Corp. - PE Biosystems Group ................... 69,900
------------
$ 310,502
------------
INDUSTRIAL -- 9.5%
500 Flextronics International Ltd. * ................. $ 41,062
650 General Electric Company ......................... 37,497
300 Sanmina Corporation * ............................ 28,088
2,000 Tyco International, Ltd. ......................... 103,750
------------
$ 210,397
------------
TECHNOLOGY -- 34.9%
800 Analog Devices, Inc. * ........................... $ 66,050
1,400 Cisco Systems, Inc. * ............................ 77,350
1,900 Dell Computer Corp. * ............................ 58,544
1,100 EMC Corporation * ................................ 109,038
100 Inktomi Corp. * .................................. 11,400
700 Microsoft Corporation * .......................... 42,175
1,225 Nokia Oyj - ADR .................................. 48,770
1,500 Nortel Networks Corp. ............................ 89,344
700 Oracle Corp. * ................................... 55,125
400 SDL, Inc. * ...................................... 123,200
2,350 TyCom, Ltd. * .................................... 90,181
------------
$ 771,177
------------
26
<PAGE>
GW&K LARGE CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
================================================================================
MARKET
SHARES COMMON STOCKS -- 89.3% (CONTINUED) VALUE
--------------------------------------------------------------------------------
UTILITIES -- 7.2%
900 Exodus Communications, Inc. * .................... $ 44,438
1,100 Qwest Communications International, Inc. * ....... 52,870
2,000 WorldCom, Inc. * ................................. 60,750
------------
$ 158,058
------------
TOTAL COMMON STOCKS-- 89.3% (Cost $1,989,980) .... $ 1,973,989
------------
================================================================================
MARKET
SHARES CASH EQUIVALENTS -- 14.3% VALUE
--------------------------------------------------------------------------------
315,948 Merrimac Cash Fund-- Institutional Class
(Cost $315,948) ................................ $ 315,948
------------
TOTAL INVESTMENTS AT VALUE-- 103.6%
(Cost $2,305,928) .............................. $ 2,289,937
LIABILITIES IN EXCESS OF OTHER ASSETS-- (3.6%) ... (80,566)
------------
NET ASSETS -- 100.0% ............................. $ 2,209,371
============
* Non-income producing security.
ADR - American Depository Receipt.
See accompanying notes to financial statements.
27
<PAGE>
GW&K SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2000
================================================================================
MARKET
SHARES COMMON STOCKS -- 85.5% VALUE
--------------------------------------------------------------------------------
BASIC MATERIALS -- 2.8%
3,500 Universal Forest Products, Inc. .................. $ 39,977
------------
CONSUMER, CYCLICAL-- 21.0%
1,800 DeVry, Inc. * .................................... $ 67,725
3,800 Extended Stay America, Inc. * .................... 50,350
1,800 Imax Corp. * ..................................... 30,488
2,800 Insight Communications Company, Inc. * ........... 44,450
1,800 Men's Wearhouse, Inc. * .......................... 50,962
7,500 PROVANT, Inc. * .................................. 52,500
------------
$ 296,475
------------
CONSUMER, NON-CYCLICAL -- 18.1%
2,300 Cedar Fair, L.P. ................................. $ 42,406
1,200 Cooper Companies, Inc. ........................... 42,450
2,800 Landauer ......................................... 52,780
2,400 NCO Group, Inc. * ................................ 28,500
2,000 Steiner Leisure Ltd. * ........................... 44,750
1,400 The Toro Company ................................. 44,100
------------
$ 254,986
------------
ENERGY -- 0.3%
4,000 Independent Energy Holdings plc * ................ $ 4,000
------------
FINANCIAL SERVICES -- 6.9%
900 Commerce Bancorp, Inc. ........................... $ 52,369
2,200 National Golf Properties, Inc. ................... 45,375
------------
$ 97,744
------------
HEALTH CARE PRODUCTS & SERVICES -- 9.3%
700 BISYS Group, Inc. * .............................. $ 54,119
27,000 HealthGate Data Corp. * .......................... 32,062
400 Techne Corp. * ................................... 44,800
------------
$ 130,981
------------
INDUSTRIAL -- 7.3%
900 ACT Manufacturing, Inc. * ........................ $ 47,475
2,300 United Rentals, Inc. * ........................... 55,488
------------
$ 102,963
------------
TECHNOLOGY -- 18.0%
1,400 Anadigics, Inc. .................................. $ 30,975
900 Cognex Corp. * ................................... 35,494
1,100 Cognizant Technology Solutions Corp. * ........... 42,900
800 DSP Group, Inc. * ................................ 29,900
5,000 iGATE Capital Corp. * ............................ 26,875
1,700 Jupiter Media Metrix, Inc. * ..................... 27,094
1,800 MCSi, Inc. * ..................................... 60,523
------------
$ 253,761
------------
28
<PAGE>
GW&K SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
================================================================================
MARKET
SHARES COMMON STOCKS -- 85.5% (CONTINUED) VALUE
--------------------------------------------------------------------------------
UTILITIES -- 1.8%
1,600 Focal Communications Corp. * ..................... $ 24,700
------------
TOTAL COMMON STOCKS-- 85.5% (Cost $1,291,909) .... $ 1,205,587
------------
================================================================================
MARKET
SHARES CASH EQUIVALENTS -- 13.5% VALUE
--------------------------------------------------------------------------------
190,109 Merrimac Cash Fund-- Institutional Class
(Cost $190,109) ................................ $ 190,109
------------
TOTAL INVESTMENTS AT VALUE-- 99.0%
(Cost $1,482,018) .............................. $ 1,395,696
OTHER ASSETS IN EXCESS OF LIABILITIES-- 1.0% ..... 14,128
------------
NET ASSETS -- 100.0% ............................. $ 1,409,824
============
* Non-income producing security.
ADR - American Depository Receipt.
See accompanying notes to financial statements.
29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
================================================================================
[LOGO]
ARTHUR ANDERSEN
To the Shareholders and Board of Trustees of the Gannett, Welsh & Kotler Funds:
We have audited the statements of assets and liabilities, including the
schedules of portfolio investments, of the GW&K Equity Fund, the GW&K Government
Securities Fund, the GW&K Large Cap Growth Fund, and the GW&K Small Cap Growth
Fund (the Funds) of the Gannett, Welsh & Kotler Funds as of September 30, 2000,
and the related statements of operations, changes in net assets, and financial
highlights for the periods indicated thereon. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of September 30, 2000, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Funds as of September 30, 2000, the results of their operations, the changes in
their net assets, and their financial highlights for the periods indicated
thereon, in conformity with accounting principles generally accepted in the
United States.
/s/ Arthur Andersen LLP
Cincinnati, Ohio
October 27, 2000
30
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