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[GRAPHIC]
THE
GATEWAY
TRUST
A FAMILY OF 100% NO-LOAD MUTUAL FUNDS
INVESTMENT INFORMATION
This brochure includes a prospectus which describes in detail the funds'
objectives, investment policies, risks, sales charges, fees and other matters
of interest. Please read the prospectus carefully before you invest or send
money.
<PAGE> 2
YOUR NEW ACCOUNT APPLICATION IS LOCATED IN THE POCKET FOLDER.
To open your Gateway account, simply send your completed application and your
check payable to THE GATEWAY TRUST in the prepaid envelope. If you need
assistance, please call us toll-free at (800) 354-6339.
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[GRAPHIC]
THE
GATEWAY
TRUST
P.O. Box 5211
Cincinnati, Ohio 45201-5211
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WELCOME TO GATEWAY
Photo Inserted Here
Left to Right:
J. Patrick Rogers, CFA, Vice President
Peter W. Thayer, CFA, President
Walter G. Sall, Chairman
We are proud to present to you Gateway's Investment Guide, including
the prospectus, which we think has set a new standard for the mutual fund
industry. We have tried to include all the information you will need to help
you decide which no-load Gateway funds will best meet your financial goals.
You invest directly with Gateway, so you pay no sales charges or redemption
fees.
We encourage you to keep this important information for future reference. If
you have any questions about the Gateway family of 100% no-load mutual funds,
please call us toll-free at (800)354-6339.
We look forward to welcoming you to the family of Gateway shareholders.
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NOT PART OF PROSPECTUS
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GATEWAY'S 100% NO-LOAD FUNDS
----------------------------
Photo Inserted Here
Left to Right:
J. Patrick Rogers, CFA, Co-Portfolio Manager
Peter W. Thayer, CFA, Co-Portfolio Manager
- -----------------------------------------------------
$1,000 Minimum Initial Investment
$100 Minimum Additional Investment
No Annual Account Charges
No-Fee IRA Accounts
Free Telephone Exchanges Between Funds
Automatic Investment Program
Telephone Redemptions
GATEWAY INDEX PLUS FUND (Growth & Income)
Value Line described this highly rated fund by stating,
"On a risk/return basis, the fund consistently provides
one of the best investment values among its peers,
boasting double-digit, five-, 10-, and 15-year returns.
Its long-term approach is supported by the fact that
over 25% of the fund's asset base is in relatively stable
IRA Accounts. Risk-averse investors seeking a fund
providing respectable returns with minimal risk should
consider Gateway Index Plus as a strong core holding
in a diversified portfolio."(1)
Index Plus, started in 1977, offers investors the opportunity to reap the
benefits of stock investing without taking substantial risk. In fact, Index
Plus is consistently ranked as having the lowest risk of any diversified stock
fund in America.
GATEWAY MID CAP INDEX FUND (Growth)
This Fund invests in the 400 stocks that make up the S&P MidCap 400 Index. It
offers a broadly diversified portfolio of medium-sized companies. The
portfolio managers utilize their expertise to provide protection against market
declines, as well as increasing potential returns when stocks are undervalued.
GATEWAY SMALL CAP INDEX FUND (Small Company Growth)
The Small Cap Index Fund follows the same strategy as the Mid Cap Index Fund,
but invests in the small companies in the Wilshire 250 Index. This Fund
provides an opportunity for shareholders interested in participating in the
"faster growth" of smaller companies with an added level of protection.
(1) As appeared in the March 7, 1995 edition of The Value Line Mutual Fund
Survey.
Past performance is no guarantee of future results.
Your investment return and principal value of an investment will fluctuate so
that your shares, when redeemed, may be worth more or less than the original
cost.
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NOT PART OF PROSPECTUS
<PAGE> 6
PROSPECTUS
----------
May 1, 1995
GATEWAY INDEX PLUS FUND
The Index Plus Fund seeks a high total return at a reduced level of
risk. The Fund is designed for conservative investors whose investment
objective is to maximize total rate of return over the long term.
The Fund invests in the 100 stocks included in the S&P 100 Stock Index.
The Fund's portfolio duplicates the composition of the S&P 100 Index. The Fund
also sells call options on the S&P 100 Index and, as the seller, receives cash
from the purchasers of the options. By selling options, the Fund attempts to
earn a greater total return over the long term than it would earn by investing
only in the stocks in the S&P 100 Index. Selling call options reduces the risk
of owning stocks, but limits the opportunity to profit from an increase in the
market value of stocks. The Fund occasionally buys put options in an attempt
to protect the Fund from a rapidly declining market. The value of a put option
generally increases as stock prices decrease.
GATEWAY MID CAP INDEX FUND
The Mid Cap Index Fund, designed for a more aggressive investor, seeks
long-term growth of capital with a secondary objective of conserving principal.
The Fund invests in the 400 stocks included in the S&P MidCap 400 Index. The
Fund's portfolio generally parallels the composition of the S&P MidCap 400
Index. The S&P MidCap 400 Index consists of the common stock of 400 companies
with a median market capitalization of approximately $1.1 billion, selected to
reflect the stock price performance of companies in the middle capitalization
range. At times, the Fund may purchase index put options to reduce the risk of
principal loss. The Fund occasionally buys index call options to increase the
potential for gain.
GATEWAY SMALL CAP INDEX FUND
The Small Cap Index Fund, also designed for a more aggressive investor,
seeks long-term growth of capital. The Fund invests in the 250 stocks included
in the Wilshire Small Cap Index. The Fund's portfolio generally parallels the
composition of the Wilshire Small Cap Index. The Wilshire Small Cap Index
consists of the common stock of 250 companies with a median market
capitalization of approximately $490 million, selected to reflect the general
characteristics and performance profile of small companies. At times, the Fund
may purchase index put options to reduce the risk of principal loss. The Fund
occasionally buys index call options to increase the potential for gain.
RISK FACTORS RELATED TO INDEX OPTION TRANSACTIONS
Option transactions on securities indexes involve risks not generally
associated with investments in stocks. The sale of call options limits a
fund's opportunity to profit from an increase in the market value of the
underlying index. The purchase of options involves the risk of loss of all or
part of the cash paid for the options. The use of options to protect a fund's
portfolio will not fully protect the fund against declines in the value of its
portfolio. A fund could experience a loss on both its portfolio securities and
the options used to hedge these securities. Unusual market conditions, the
lack of a ready market for any particular option at a specific time, or
restrictions imposed by regulatory agencies may adversely affect a fund's
hedging strategy. Additional information about various risk factors and each
fund's investment practices, strategies and restrictions is located on pages 22
through 26 of the Prospectus.
THE GATEWAY FAMILY OF MUTUAL FUNDS
Each fund is a series of The Gateway Trust. This Prospectus sets forth
concisely the information about the funds that you should know before
investing. You should keep it for future reference. Additional information
has been filed with the Securities and Exchange Commission and is included in
the Statement of Additional Information of The Gateway Trust dated May 1,
1995. The Statement of Additional Information ("SAI") is incorporated herein
by reference. You can obtain more information about the funds or free copies
of the SAI by writing or calling: The Gateway Trust, P. O. Box 5211,
Cincinnati, Ohio 45201-5211, (800) 354-6339.
THE SECURITIES AND EXCHANGE COMMISSION DOES NOT APPROVE SHARES OF ANY MUTUAL
FUND. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE> 7
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C> <C>
FEES AND EXPENSES . . . . . . . . . . . . . . . . . 3 All Gateway funds are 100% no-load. There are no sales charges, 12b-1 fees,
redemption fees or annual account charges when you invest in a Gateway fund.
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . 4 Tables displaying financial information for each fund.
HOW TO OPEN A GATEWAY ACCOUNT . . . . . . . . . . . 6 New investors can open an account by mail or by telephone.
HOW TO PURCHASE ADDITIONAL SHARES . . . . . . . . . 7 Shares may be purchased by check, by wire transfer or by automatic
withdrawals from your bank account.
HOW TO REDEEM SHARES . . . . . . . . . . . . . . . 8 Redemption requests can be made by mail or by telephone.
ADDITIONAL SHAREHOLDER INFORMATION . . . . . . . . 9 Additional information about buying and selling shares.
GATEWAY PERFORMANCE . . . . . . . . . . . . . . . .10 Total return information.
EXPLANATION OF TERMS AND CHARTS . . . . . . . . . .11 Dictionary of investment terms and chart descriptions.
CO-PORTFOLIO MANAGERS' PROFILES . . . . . . . . . .13 Profiles of the co-portfolio managers.
INDEX PLUS FUND CHARTS & GRAPHS . . . . . . . . . .14 Graphs and tables showing fund performance, risk and expenses for the Index
Plus Fund.
MID CAP INDEX FUND CHARTS . . . . . . . . . . . . .16 Tables showing fund performance, risk and expenses for the Mid Cap Index
Fund.
SMALL CAP INDEX FUND CHARTS . . . . . . . . . . . .17 Tables showing fund performance, risk and expenses for the Small Cap Index
Fund.
DIVIDENDS AND DISTRIBUTIONS . . . . . . . . . . . .18 Investors may reinvest their distributions at no charge.
ABOUT THE INVESTMENT ADVISER . . . . . . . . . . . 19 Gateway Investment Advisers, Inc. provides investment advisory services to
each fund.
HOW FUND SHARES ARE PRICED . . . . . . . . . . . . 20 Fund share prices are available 24 hours a day by calling (800) 354-6339.
TAXES . . . . . . . . . . . . . . . . . . . . . . .21 Tax information will be reported to you on Form 1099.
INVESTMENT PRACTICES. . . . . . . . . . . . . . . .22 An explanation of the investment practices and strategies employed by each
fund.
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . .26 Each fund has adopted certain investment restrictions.
GENERAL INFORMATION ABOUT GATEWAY . . . . . . . . .27 Additional information on The Gateway Trust and its Trustees.
</TABLE>
2
<PAGE> 8
FEES AND EXPENSES
-----------------
THE GATEWAY FAMILY OF MUTUAL FUNDS IS 100% NO-LOAD.
YOU DO NOT PAY ANY SALES CHARGES WHEN YOU INVEST IN A GATEWAY FUND.
SHAREHOLDER TRANSACTION EXPENSES
The Gateway family of funds does not charge a fee for purchases,
exchanges or redemptions. All Gateway funds are 100% no-load.
<TABLE>
<CAPTION>
Index Mid Cap Small Cap
Shareholder Transaction Expenses Plus Fund Index Fund Index Fund
- -------------------------------- --------- ---------- ----------
<S> <C> <C> <C>
Maximum Sales Load on Purchase None None None
Maximum Sales Load on
Reinvested Dividends None None None
Deferred Sales Load None None None
Redemption Fees None None None
Exchange Fees None None None
The custodian for the Gateway funds charges $10 for each wire transfer.
</TABLE>
FUND OPERATING EXPENSES
Annual fund operating expenses are paid from a fund's assets. Each fund
pays an advisory fee to Gateway Investment Advisers, Inc. (the "Adviser").
Each fund also pays other expenses for services such as maintaining shareholder
records and furnishing shareholder statements and fund reports. A fund's
expenses are factored into its share price each day and are not charged
directly to shareholder accounts. The numbers in the following table are
calculated as percentages of average net assets.
<TABLE>
<CAPTION>
Index Mid Cap Small Cap
Annual Fund Operating Expenses Plus Fund Index Fund Index Fund
- ------------------------------ --------- ---------- ----------
<S> <C> <C> <C>
Advisory Fees (after waiver) 0.71% 0.04% 0.28%
12b-1 Fees 0.00 0.00 0.00
Other Expenses 0.50 1.46 1.22
----- ----- -----
Total Fund Operating Expenses (after waiver) 1.21% 1.50% 1.50%
===== ===== =====
(The Fund's Expense Ratio)
</TABLE>
EXAMPLE
Assume that each fund's annual return is 5% and its operating expenses
are exactly as previously described in the Fund Operating Expenses table.
For every $1,000 you invested, the table below shows the amount of expenses you
would incur if you sold your shares after the number of years indicated. This
example illustrates the effect of expenses, but is not meant to suggest actual
or future returns or expenses, all of which may vary.
<TABLE>
<CAPTION>
Index Mid Cap Small Cap
Plus Fund Index Fund Index Fund
--------- ---------- ----------
<S> <C> <C> <C>
One Year $ 12 $ 15 $ 15
Three Years 38 47 47
Five Years 66 82 82
Ten Years 147 179 179
</TABLE>
The purpose of these tables is to assist you in understanding the direct and
indirect costs and expenses you will bear as a fund shareholder.
WAIVER OF 1994 ADVISORY FEE FOR MID CAP INDEX FUND. The investment advisory
contract requires the Adviser to waive some or all of its advisory fees as
necessary to limit the Mid Cap Index Fund's expense ratio to 1.50% of its
average daily net assets. Any waiver will not exceed the aggregate advisory
fee payable by the Fund for the applicable year. The table presents the
advisory fees for the Fund net of the 1994 fee waiver. Absent the waiver, the
advisory fees and total fund operating expenses of the Fund would have been
0.90% and 2.36%.
WAIVER OF 1994 ADVISORY FEE FOR SMALL CAP INDEX FUND. The investment advisory
contract requires the Adviser to waive some or all of its advisory fees as
necessary to limit the Small Cap Index Fund's expense ratio to 2.00% of its
average daily net assets. Any contractual or voluntary waiver will not exceed
the aggregate advisory fee payable by the Fund for the applicable year. The
Adviser waived a portion of its advisory fees in 1994. The actual advisory
fees and total fund operating expenses of the Fund in 1994 were 0.78% and
2.00%. Absent the waiver, the advisory fees and total fund operating expenses
of the Fund in 1994 would have been 0.90% and 2.12%.
RESTATEMENT OF FEES FOR SMALL CAP INDEX FUND. The Adviser has voluntarily
agreed to waive some or all of its advisory fees as necessary to limit the
Small Cap Index Fund's expense ratio to 1.50% in 1995. The advisory fees and
total fund operating expenses for the Fund in the table have been restated to
reflect the anticipated 1995 fee waiver.
3
<PAGE> 9
FINANCIAL HIGHLIGHTS
--------------------
The following condensed financial information for the five years ended
December 31, 1994 has been audited by Arthur Andersen LLP, independent public
accountants. The audit report on the 1994 financial statements should be read
in conjunction with this condensed financial information. The audit report on
the 1994 financial statements is incorporated by reference in the Statement of
Additional Information and is available from the Trust. The presentation is
for a share outstanding throughout each period.
Gateway Index Plus Fund
-----------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $15.85 $15.51 $15.24 $13.64 $15.49 $13.67 $11.60 $14.63 $14.69 $14.23
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income 0.26 0.26 0.27 0.31 0.41 0.33 0.23 0.27 0.33 0.40
Net gains or losses on securities 0.61 0.88 0.51 2.10 1.15 2.29 2.05 (1.05) 1.41 1.74
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations 0.87 1.14 0.78 2.41 1.56 2.62 2.28 (0.78) 1.74 2.14
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Dividends from net investment income (0.27) (0.26) (0.28) (0.30) (0.41) (0.37) (0.21) (0.33) (0.34) (0.46)
Distributions from capital gains (0.86) (0.47) (0.23) (0.51) (3.00) (0.35) 0.00 (0.28) (1.46) (0.20)
Distributions in excess of realized
capital gains (0.11) (0.07) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Returns of capital 0.00 0.00 0.00 0.00 0.00 (0.08) 0.00 (1.64) 0.00 (1.02)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions to shareholders (1.24) (0.80) (0.51) (0.81) (3.41) (0.80) (0.21) (2.25) (1.80) (1.68)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $15.48 $15.85 $15.51 $15.24 $13.64 $15.49 $13.67 $11.60 $14.63 $14.69
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN 5.57% 7.40% 5.15% 17.80% 10.32% 19.45% 19.76% (5.65%) 12.69% 15.89%
Net assets, end of period (millions) $164.65 $207.18 $212.95 $81.37 $38.08 $31.51 $27.33 $27.35 $45.31 $28.43
Ratio of expenses to average net assets(1) 1.21% 1.11% 1.11% 1.22% 1.34% 1.40% 2.08%(2) 1.48% 1.49% 1.50%
Ratio of net income to average net assets(1) 1.54% 1.58% 1.96% 2.17% 2.59% 2.21% 1.75%(2) 1.83% 2.23% 2.81%
Portfolio turnover rate 4% 17% 15% 31% 79% 30% 10% 175% 85% 96%
Additional information about the performance of each Gateway fund is contained in 1994 Annual Reports to shareholders of the Gateway
funds. Annual Reports for 1994 may be obtained without charge by writing THE GATEWAY TRUST, P.O. Box 5211, Cincinnati, Ohio
45201-5211 or by calling (800)354-6339.
</TABLE>
4
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FINANCIAL HIGHLIGHTS
--------------------
<TABLE>
<CAPTION>
GATEWAY MID CAP INDEX FUND
--------------------------
Year Ended Year Ended From 9/30/92 to
1994 1993 12/31/92(3)
------ ------ ------
<S> <C> <C> <C>
Net asset value, beginning of period $10.16 $10.04 $10.00
------ ------ ------
Net investment income 0.08 0.11 0.03
Net gains or losses on securities (0.60) 0.41 0.04
------ ------ ------
Total from investment operations (0.52) 0.52 0.07
------ ------ ------
Dividends from net investment income (0.05) (0.11) (0.03)
Distributions from capital gains (0.01) (0.29) 0.00
------ ------ ------
Total distributions to shareholders (0.06) (0.40) (0.03)
------ ------ ------
Net asset value, end of period $ 9.58 $10.16 $10.04
====== ====== ======
Total Return (5.12%) 5.18% 0.70%
Net assets, end of period (millions) $ 6.59 $10.46 $10.69
Ratio of expenses to average net assets(1) 1.50% 1.50% 1.50%
Ratio of net income to average net assets(1) 0.59% 1.06% 1.39%
Portfolio turnover rate 8% 105% 0%
</TABLE>
<TABLE>
<CAPTION>
GATEWAY SMALL CAP INDEX FUND
----------------------------
Year Ended From 6/16/93 to
12/31/94 12/31/93(3)
------ -------
<S> <C> <C>
Net asset value, beginning of period $10.35 $10.00
------ -------
Net investment income (loss) (0.02) 0.04
Net gains or losses on securities (0.60) 0.61
------ -------
Total from investment operations (0.62) 0.65
------ -------
Dividends from net investment income (0.00) (0.04)
Distributions from capital gains (0.10) (0.26)
------ -------
Total distributions to shareholders (0.10) (0.30)
------ -------
Net asset value, end of period ($9.63) $10.35
====== =======
Total Return (5.99%) 6.50%
Net assets, end of period (millions) $ 9.66 $13.00
Ratio of expenses to average net assets(1) 2.00% 1.92%
Ratio of net income (loss) to average net assets(1) (0.14%) 0.98%
Portfolio turnover rate 39% 3%
<FN>
(1) The ratios of expenses to average net assets would have increased and net investment income (loss) to average net assets would
have decreased (increased) by the following amounts had the Adviser not waived expenses: 0.13% and 0.29%, respectively, for
the Index Plus Fund in 1988 and 1985; 0.86%, 0.63% and 0.76%, respectively, for the Mid Cap Index Fund in 1994, 1993 and 1992;
and 0.12% and 0.31%, respectively, for the Small Cap Index Fund in 1994 and 1993.
(2) The figures include a non-recurring state franchise tax expense, without which the ratios of expenses and net income to
average net assets would have been 1.49% and 2.34%, respectively.
(3) Operations of the Mid Cap Index Fund and Small Cap Index Fund commenced on September 30, 1992 and June 16, 1993, respectively.
The expense and net income ratios and portfolio turnover rates in those initial years have been annualized. The total
returns in those initial years have not been annualized.
5
</TABLE>
<PAGE> 11
HOW TO OPEN A GATEWAY ACCOUNT
-----------------------------
Gateway funds are available for individuals, IRA's, trusts and pension plans.
OPENING A NEW ACCOUNT
You may open an account by mail or by telephone. The minimum initial
investment generally is $1,000 in any fund. No sales commission is charged by
the Gateway funds for purchases or redemptions of fund shares.
BY MAIL
If you wish to open your account by mail, please complete and sign the
New Account Application Form which accompanies this Prospectus. The application
has instructions to assist you. Please indicate the amount of your investment
in each Gateway fund. When you have completed the application, please mail it
to: The Gateway Trust, Shareholder Services, P. O. Box 5211, Cincinnati, OH
45201-5211. Please include your check or money order payable to The Gateway
Trust with your application.
BY TELEPHONE
If you wish to open your account by telephone, you must wire your
investment to The Gateway Trust. Please call Gateway shareholder services at
(800) 354-6339 for instructions. You must provide the following information
to open your new account: your name, your address, your social security or tax
identification number, the size of your initial investment, the Gateway
fund(s) in which you wish to invest, and the name and address of your financial
institution wiring the funds. You must then instruct your financial
institution to wire the funds to:
The Gateway Trust, c/o Star Bank, N.A.
ABA #042-0000-13
Cincinnati, Ohio
Your name
Your Gateway Account No. xxxxx
The Gateway fund(s) in which you wish to invest.
You must send the following information with your wire: your name,
your Gateway account number, and the name of the fund in which you wish to
invest. See Page 9 for additional information about wire transfers and
telephone instructions.
OPENING A NEW IRA ACCOUNT/TRANSFER OF EXISTING IRA
If you wish to open a new IRA in a Gateway fund, please call Gateway to
obtain an IRA New Account Application and an IRA Investment Kit. To transfer
an existing IRA from a bank or other mutual fund to your Gateway IRA, you must
complete an IRA Transfer Form. You can transfer or roll over funds from an
employer-sponsored plan, such as a 401(k) plan, by completing an IRA New Account
Application Form. Please call Gateway shareholder services at (800) 354-6339 to
obtain appropriate forms. Gateway IRAs are free of any annual charges or
transaction fees.
OPENING A TRUST/PENSION PLAN ACCOUNT
If you wish to open a trust account in a Gateway fund, please complete
the New Account Application Form. In the registration section, give the full
legal name of the trust. Pension plans may invest in a Gateway fund by
completing the New Account Application Form.
OPENING A UNIFORM GIFT TO MINORS ACT ACCOUNT
If you plan to open a Gateway account for a minor (typically used for
educational savings plans), please complete the UGMA/UTMA section of the New
Account Application Form. Be sure to include the minor's social security
number.
6
<PAGE> 12
HOW TO PURCHASE ADDITIONAL SHARES
---------------------------------
THE MINIMUM AMOUNT FOR AN ADDITIONAL INVESTMENT IS $100
You may add to your Gateway account at any time by choosing one of the
following purchase options. The minimum amount for an additional investment is
$100. If your purchase request is received in good order by 4:15 PM Eastern
Time, your purchase will be based on that day's closing price for the fund.
After each purchase, you will receive a confirmation statement showing
the value of your account. Certificates are not issued for fund shares.
BY MAIL
The most common way of purchasing additional shares in a Gateway fund is
by mail. Please send your check or money order and an Additional Investment
Form in the prepaid envelope. Additional Investment Forms and prepaid
envelopes are included with each confirmation statement, quarterly report and
periodic newsletter sent to you. Please make all checks or money orders payable
to The Gateway Trust and mail to: The Gateway Trust, Shareholder Services,
P.O. Box 5211, Cincinnati, OH 45201-5211.
BY WIRE
If you wish to avoid any mail delay, you may purchase additional shares
by wire. Please call Gateway to arrange a purchase by wire. You must then
instruct your financial institution to wire funds to:
The Gateway Trust, c/o Star Bank, N.A.
ABA #042-0000-13
Cincinnati, Ohio
Your name
Your Gateway Account No. XXXXX
The Gateway fund(s) in which you wish to invest.
You must send the following information with your wire: your name,
your Gateway account number, and the name of the fund in which you wish to
invest. See Page 9 for additional information about wire transfers and
telephone instructions.
BY AUTOMATIC INVESTMENT PROGRAM
Gateway's Automatic Investment Program is a way to add systematically to
your existing Gateway account. When you use the program, funds are
electronically transferred from your bank account into your Gateway account and
additional shares are then purchased for your account. This service is
available on a monthly or quarterly basis with a minimum of $100 per transfer.
The Automatic Investment Program is free of charge. Please call Gateway
shareholder services at (800) 354-6339 to make arrangements to use this program.
BY EXCHANGE FROM ANOTHER GATEWAY FUND
To purchase shares by exchanging from another Gateway fund, please call
Gateway shareholder services at (800) 354-6339 for instructions. If your
exchange request is received by 4:15 PM Eastern Time, the exchange will be based
on that day's closing prices for the funds involved in the exchange.
The Trust does not charge any fee for exchanges between Gateway funds.
Generally, an exchange between funds is a taxable event. State securities laws
may restrict your ability to make exchanges. The Trust reserves the right to
temporarily or permanently terminate the exchange privilege for any shareholder
who makes more than six exchanges in a calendar year. You will receive advance
written notice that the Trust intends to limit your use of the exchange
privilege. The Trust also reserves the right to terminate or modify the
exchange privilege or to refuse an exchange if the exchange would adversely
affect a fund involved in the exchange.
7
<PAGE> 13
HOW TO REDEEM SHARES
--------------------
INVESTORS MAY SELL SHARES BY WRITING OR CALLING GATEWAY.
You may redeem shares from your Gateway account at any time by choosing
one of the following options. If your redemption request is received in good
order by 4:15 PM Eastern Time, your redemption will be based on that day's
closing price for the fund.
The proceeds from your redemption will be mailed or wired, depending on
the method of redemption and your instructions. Normally these proceeds will
be sent on the following business day. Payments to shareholders who have
purchased shares by check will not be made until the purchase check has cleared,
which could take up to fifteen days.
BY MAIL
Redemption requests made in writing should be sent to: The Gateway
Trust, Shareholder Services, P. O. Box 5211, Cincinnati, Ohio 45201-5211.
Each redemption request should include a letter of instruction, specify
the fund and the number of shares or dollar amount to be redeemed, and should
be signed by all owners of the shares exactly as their names appear on the
account. In certain cases, other supporting legal documents may be required.
The redemption proceeds will be mailed to the address shown on your account.
A signature guarantee is not usually required. However, a signature
guarantee is required under certain circumstances, including redemptions over
$10,000 and those involving payment to persons other than the record owner(s) of
the shares. A signature guarantee will be accepted from banks, brokers,
dealers, municipal securities dealers or brokers, government securities dealers
or brokers, credit unions (if authorized by state law), national securities
exchanges, registered securities associations, clearing agencies, and savings
associations. Notary publics cannot guarantee your signature.
BY TELEPHONE
If telephone exchange and/or redemption instructions are on file, you
may redeem your shares by calling Gateway shareholder services at (800)
354-6339. If you redeem your shares by telephone, the redemption proceeds will
be paid by check to the owner(s) of the shares shown on Gateway's records and
mailed to the address shown on Gateway's records for your account. Redemption
proceeds can be sent by wire if you completed the wire transfer instructions in
your original New Account Application Form or you have sent separate wire
transfer instructions to Gateway. Separate wire transfer instructions must be
signed by all owners of the shares exactly as their names appear on the
account, and the signatures must be guaranteed. The telephone redemption
procedure is not available for IRAs.
SYSTEMATIC WITHDRAWAL PROGRAM
If the value of your account is at least $5,000, you can arrange for
systematic quarterly or monthly withdrawals in the amount of $100 or more.
Please call Gateway shareholder services at (800) 354-6339 to make arrangements
to use this program.
See Page 9 for additional information about redemptions and telephone
instructions.
8
<PAGE> 14
ADDITIONAL SHAREHOLDER INFORMATION
FEES CHARGED BY YOUR BROKER OR BANK
If you buy or sell shares of a Gateway fund through a broker, the broker
may charge you additional fees and expenses. If you buy shares through a wire
transfer, The Gateway Trust will not charge you for the wire. Your financial
institution may charge you for this service or for transfers from your bank
account to a Gateway fund through the Automatic Investment Program. If you
redeem shares through a wire transfer, the Trust's custodian will assess a wire
charge of $10. Your institution may charge you for receiving a wire transfer of
redemption proceeds.
ADDITIONAL IRA INFORMATION
For information about redeeming shares from an IRA, please call Gateway
shareholder services at (800) 354-6339. More detailed information about
transfers to and distributions from an IRA and a general description of some of
the Internal Revenue Service rules governing IRAs are set forth in the SAI.
TELEPHONE TRANSACTIONS
The Gateway Trust will not be liable for following instructions received
by telephone that it reasonably believes to be genuine. The Trust will employ
reasonable procedures to confirm that telephone instructions are genuine. All
shareholders of the Gateway funds have telephone redemption and exchange
privileges unless the shareholder has specifically declined these privileges.
If you do not wish to have telephone privileges for your account, you must mark
the appropriate section on the New Account Application Form or notify the Trust
in writing. To protect shareholders who have telephone privileges the Trust
follows certain procedures, including requiring a form of personal
identification before acting upon telephone instructions, making redemption
checks requested by telephone payable only to the owner(s) of the account shown
on the Trust's records, mailing such redemption checks only to the account
address shown on the Trust's records, directing wire redemptions requested by
telephone only to the bank account shown on the Trust's records, providing
written confirmation of any transaction requested by telephone, and normally
tape recording any instructions received by telephone.
AUTOMATIC REDEMPTIONS BY THE TRUST
The Gateway Trust reserves the right to reject any investment at any
time. The Trust also reserves the right to automatically redeem your account(s)
under certain circumstances. You will receive written notice at least 60 days
prior to the automatic redemption of your account(s) by the Trust. Your
account(s) may be automatically redeemed when the aggregate value of your
account(s) falls below $800 (other than as a result of market action) unless you
purchase additional shares to increase the value of your account(s) to at least
$1,000 before the end of the 60-day period. Your account(s) may also be
automatically redeemed if you do not provide a valid U.S. social security number
or taxpayer identification number or other requested documents before the end
of the 60-day period.
ADDITIONAL REDEMPTION INFORMATION
Redemption proceeds will be sent to you no later than five business days
after your request is received in good order. The right of redemption may be
suspended in certain circumstances, such as the closing of the New York Stock
Exchange for a period other than weekends or normal holidays.
9
<PAGE> 15
GATEWAY PERFORMANCE
-------------------
GATEWAY HAS BECOME AN INDUSTRY LEADER IN PROVIDING PROSPECTIVE INVESTORS AND
EXISTING SHAREHOLDERS WITH THE MOST COMPLETE INFORMATION ON ITS NO-LOAD
FUNDS.
It is important for you to understand completely the risks as well as
the potential rewards of each Gateway fund before investing. The tables and
graphs appearing in this section of this Prospectus are designed to help you
understand these risks and rewards and should be studied carefully. A brief
description of each table and graph, as well as its significance, is included on
the following pages. For a more complete explanation see the Statement of
Additional Information.
YEAR-BY-YEAR TOTAL RETURNS SINCE INCEPTION
<TABLE>
<CAPTION>
Lehman
Index Mid Cap Small Cap S&P 500 Gov't/Corp
Plus Fund Index Fund Index Fund Stock Index Bond Index
--------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1994 5.57% (5.12%) (5.99%) 1.32% (3.52%)
1993 7.40 5.18 6.50** 10.08 11.02
1992 5.15 0.70* 7.62 7.58
1991 17.80 30.47 16.13
1990 10.32 (3.11) 8.28
1989 19.45 31.69 14.23
1988 19.76 16.52 7.58
1987 (5.65) 5.05 2.29
1986 12.69 18.51 15.62
1985 15.89 31.57 21.30
1984 4.04 6.10 15.02
1983 14.80 22.47 8.00
1982 9.46 21.40 31.09
1981 4.59 (5.05) 7.26
1980 16.50 32.33 3.06
1979 15.37 18.20 2.30
1978 5.90 6.40 1.19
<FN>
*September 30, 1992 to December 31, 1992
**June 16, 1993 to December 31, 1993
</TABLE>
COMPARATIVE PERFORMANCE INFORMATION
Each Gateway fund may compare its performance to various indexes, such
as the S&P 500 Index. Each Gateway fund may also compare its performance to
that of other mutual funds or categories of mutual funds as reported by
independent services, such as Morningstar, Inc. and Value Line Mutual Fund
Survey, or by other financial publications.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS*
--------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Gateway Index Plus 5.57% 6.03% 9.15% 10.57%
Gateway Mid Cap Index (5.12) n/a n/a n/a
Gateway Small Cap Index 5.99 n/a n/a n/a
S&P 100 Index 2.61 6.49 8.55 13.65
S&P MidCap 400 Index (3.58) 7.14 n/a n/a
Wilshire Small Cap Index (3.09) n/a n/a n/a
S&P 500 Index 1.32 6.27 8.70 14.32
Lehman Gov't/Corp Bond Index (3.52) 4.85 7.71 9.84
Consumer Price Index 2.67 2.78 3.49 3.58
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURNS*
-------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Gateway Index Plus 5.57% 19.21% 54.92% 173.07%
Gateway Mid Cap Index (5.12) n/a n/a n/a
Gateway Small Cap Index (5.99) n/a n/a n/a
S&P 100 Index 2.61 20.77 50.73 259.50
S&P MidCap 400 Index (3.58) 22.98 n/a n/a
Wilshire Small Cap Index (3.09) n/a n/a n/a
S&P 500 Index 1.32 20.03 51.73 281.36
Lehman Govt Corp/Bond Index (3.52) 15.27 44.96 155.62
Consumer Price Index 2.67 8.56 18.72 42.21
<FN>
* For periods ended December 31, 1994
</TABLE>
10
<PAGE> 16
EXPLANATION OF TERMS AND CHARTS
-------------------------------
EXPLANATION OF TERMS
TOTAL RETURN is the change in the value of an investment in a fund over a given
period, assuming reinvestment of distributions.
A CUMULATIVE TOTAL RETURN reflects actual performance over a stated period of
time.
An AVERAGE ANNUAL TOTAL RETURN is a rate of return that, if achieved
consistently throughout a given period, would produce a cumulative total return
equal to that actually achieved by the fund over the same period. Average
annual total returns smooth out variations in performance; they are not the same
as actual year-by-year results.
STANDARD DEVIATION is a statistical measure of volatility. It measures the
expected change in the value of a fund or a market index such as the S&P 500
Index. A fund with an expected return of 10% and a standard deviation of 15%
would be expected to show returns of -5% to +25% in two out of every three
years. Volatility is often used as a measure of risk. A lower standard
deviation implies lower volatility.
BETA is a measure of a fund's volatility relative to an appropriate index. It
measures how much the value of a fund fluctuates compared to the index. As an
example, the S&P 500 Index has a beta of 1.0. Any stock mutual fund with a
beta greater than 1.0 is more volatile than the stock market, and any fund with
a beta lower than 1.0 is less volatile than the stock market as represented by
the S&P 500 Index.
THE S&P 500 INDEX is a widely recognized measure of performance for the stock
market. The S&P 500 figures represent the prices of an unmanaged index of 500
common stocks and assume reinvestment of all dividends paid on the stocks in the
index.
THE LEHMAN GOVERNMENT/CORPORATE BOND INDEX is a widely recognized measure of
performance for the bond market representing an unmanaged index of selected
government and corporate bonds. The Lehman Index figures assume reinvestment of
all distributions paid on the bonds in the index.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation calculated
by the U. S. government.
EXPLANATION OF CHARTS AND TABLES
CO-MANAGER PROFILE: Brief biographies of the co-managers show
educational background and other important information. Also shown are
personal financial commitments to the funds.
GROWTH OF $10,000: This chart shows the growth of a $10,000 investment in the
Index Plus Fund made ten years ago. It assumes that all distributions were
reinvested in additional shares. This graph makes it easy to see any sudden
price changes. It also shows whether there was steady appreciation in value or a
series of gains or losses.
RISK/REWARD CHARTS: These are the most important charts. They show that, in
general, more risk must be taken to earn higher total returns. Any investment
can be shown on the graph by plotting its risk (standard deviation) and its
reward (average annual total return). The charts show three points. One point
shows 30-day U.S. Treasury bills, one point shows the S&P 500 Index, and the
third point shows the Index Plus Fund. The line connecting Treasury bills and
the S&P 500 Index shows all the
11
<PAGE> 17
EXPLANATION OF TERMS AND CHARTS
-------------------------------
possible outcomes if an investment had been allocated between these two choices
in varying positions. When the Index Plus Fund point appears above the line,
it shows that the fund earned a higher-than-expected return during the period
covered by the chart, considering the amount of risk it took to earn that
return. When the point appears below the line, it shows the reverse. The next
ten years may be quite different in terms of reward for all three investments
shown on the charts. The risk, however, tends to be constant over time.
RISK: It is very important for investors to understand the risk of an
investment. The Trustees of The Gateway Trust are concerned that some
investors may purchase mutual funds without an appreciation for the risk they
have assumed. The historic risk of each Gateway fund is shown in this table.
Risk is measured in four ways. Each measure of risk is described more fully in
the Statement of Additional Information. Remember these points when examining
this table: When the standard deviation of the fund is lower than the standard
deviation of the index, the fund is less volatile than the index. A beta for a
fund which is lower than 1.0 signifies that the fund is less volatile than the
index. The number of periods when the fund's total return was negative over
the past ten years (or since inception) is the third indicator of risk. The
periods of negative return for an index are included for comparison purposes.
The fund's monthly total return in its "best" and "worst" months and the
monthly total return of the S&P Index in its "best" and "worst" months is also
included in the risk section. The past ten years were historically very
favorable for stocks.
EXPENSES: Gateway fund expenses are compared to average expenses for a stock
fund. Because Gateway funds are no-load, the expenses of a Gateway fund are
usually lower than the average expenses. Average expenses were calculated by
using expense information for 1,717 stock funds, as reported by Morningstar,
Inc. The average expense calculation included sales loads, deferred sales
loads, and operating expenses. There can be no assurance that lower expenses
will result in a higher total return, although lower expenses are a factor in
determining total return.
TEN LARGEST HOLDINGS: The top ten securities owned by each fund at December
31, 1994 are shown. They are ranked by value with the largest security listed
first. The entire portfolio is shown in the December 31, 1994 Annual Report.
12
<PAGE> 18
CO-PORTFOLIO MANAGERS' PROFILES
-------------------------------
Peter W. Thayer, CFA
--------------------
Portfolio Manager from 1977 to 1994
Co-Portfolio Manager from 1994
MBA Harvard Business School 1973
BBA University of Wisconsin 1971
Owns $342,114 of the Index Plus Fund
Owns $51,889 of the Small Cap Index Fund
Owns $50,698 of the Mid Cap Index Fund
Age 46
Peter W. Thayer, CFA, is the president and co-founder of Gateway
Investment Advisers, Inc. Mr. Thayer is often quoted in The Wall Street
Journal, Business Week, Money, Donoghue'$ MONEYLETTER, Barrons, and other
financial publications. He has made numerous television and radio appearances
and has been a speaker at over thirty investment conferences in the U. S. and
Europe.
He is the author of over 25 articles on options and investing. Mr.
Thayer enjoys chess, tennis, scuba diving, collecting Rookwood Pottery and
birdwatching. He has sighted 2,060 species of birds worldwide. He and his
wife, Roz, have been married twenty-three years and have three children.
J. Patrick Rogers, CFA
----------------------
Co-Portfolio Manager from 1994
MBA Xavier University 1994
BBA University of Notre Dame 1986
Owns $12,900 of the Index Plus Fund
Owns $2,064 of the Mid Cap Index Fund
Owns $10,041 of the Cincinnati Fund
Age 31
J. Patrick Rogers, CFA, joined Gateway Investment Advisers, Inc. in
1989 and has been a vice president since 1990. He has recently assumed the
responsiblities of co-portfolio manager for the Index Plus Fund, the Mid Cap
Index Fund, and the Small Cap Index Fund. In addition, he is portfolio manager
for the Cincinnati Fund.
He was awarded the Martin B. Friedman Award at Xavier University which
is given annually to the most outstanding MBA student. Mr. Rogers is a
frequent speaker at various individual investor groups, including AAII, and is
active in many industry associations, including the 100% No-Load Mutual Fund
Council.
He and his wife, Elizabeth, have two children.
13
<PAGE> 19
COMPARISON CHART
GROWTH OF $10,000
December 31, 1984-December 31, 1994
GATEWAY INDEX PLUS FUND
<TABLE>
<CAPTION>
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
---------- --------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jan. 31 10,316.56 11,624.68 13,461.91 12,778.84 15,156.19 17,011.89 20,172.45 22,860.68 24,348.53 26,308.33
Feb. 28 10,424.40 11,917.74 13,542.60 13,118.76* 15,188.58 17,410.16 20,486.08 23,116.26* 24,534.80 26,063.52
Mar. 31 10,410.02 12,145.67 13,688.12 13,076.14 15,210.98 17,979.25 20,685.88 23,116.26 24,457.27 25,198.55
Apr. 30 10,559.18 12,339.31 13,825.37 13,310.79 15,569.27 18,059.36 20,743.18 23,388.11 24,503.98 25,428.07
May 31 10,885.45 12,641.29 14,163.91 13,556.10 15,742.98 18,620.14 21,144.29 23,463.66 24,753.43 25,936.31
June 30 11,070.83 12,758.73 14,466.23 13,801.49 15,808.00 18,700.57 21,029.82 23,539.21 24,893.78 25,542.84
July 31 11,116.24 12,422.15 14,705.34 13,962.10 16,288.40 18,781.13 21,447.25 23,766.60 25,034.68 26,267.46
August 31 11,093.31 12,820.07 14,742.12 13,865.74 16,539.45 18,010.09 21,821.50 23,766.60 25,379.41 26,695.64
Sept 30 10,833.37 12,387.54 14,742.88 14,315.84 16,681.78 17,838.08 21,950.25 23,857.62 25,269.77 26,712.11
Oct 31 11,179.11 12,854.87 12,279.59 14,530.79 16,857.38 17,872.80 22,268.53 23,903.43 25,505.79 27,158.69
Nov 30 11,415.79 13,113.75 11,799.84 14,616.77 17,263.45 18,914.61 21,965.68 24,253.85 25,600.16 26,695.57
Dec 31 11,589.35 13,060.19 12,322.08 14,756.78 17,626.37 19,445.39 22,905.81 24,084.56 25,867.68 27,307.56
<FN>
* Year when February ends on the 29th.
</TABLE>
S & P 500
<TABLE>
<CAPTION>
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
---------- --------- ---------- ---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jan 31. 10,755.00 13,210.09 17,665.75 17,067.95 20,483.42 23,446.68 25,412.90 31,180.25 34,478.58 38,918.89
Feb. 28 10,916.33 14,220.66 18,381.21 17,861.61* 19,973.38 23,748.67 27,230.43 31,584.03* 34,948.53 37,862.24
Mar. 31 10,921.78 15,009.90 18,914.27 17,316.83 20,438.76 24,378.01 27,889.95 30,969.72 35,685.94 36,211.45
Apr. 30 10,889.02 14,822.28 18,734.58 17,498.65 21,499.54 23,768.92 27,956.05 31,878.69 34,823.41 36,675.68
May 31 11,542.36 15,630.09 18,921.93 17,638.64 22,370.27 26,086.16 29,162.07 32,035.53 35,754.94 37,277.53
June 30 11,715.49 15,887.99 19,868.02 18,450.02 22,242.76 25,910.07 27,826.16 31,558.84 35,859.70 36,363.86
July 31 11,692.06 14,974.43 20,851.49 18,385.45 24,251.30 25,826.90 29,123.13 32,848.02 35,715.54 37,558.05
Aug. 31 11,616.06 16,112.49 21,654.27 17,769.53 24,726.60 23,492.15 29,813.06 32,175.62 37,070.59 39,097.93
Sept. 30 11,244.35 14,775.15 21,167.05 18,533.62 24,626.21 22,348.79 29,314.29 32,553.68 36,786.26 38,141.98
Oct. 31 11,733.48 15,602.56 16,573.80 19,034.03 24,054.39 22,253.58 29,708.27 32,665.99 37,547.37 38,999.03
Nov. 30 12,554.82 16,008.23 15,223.04 18,758.04 24,545.10 23,692.05 28,511.33 33,778.27 37,189.54 37,578.69
Dec. 31 13,157.46 15,592.01 16,379.99 19,086.30 25,134.18 24,352.35 31,772.17 34,192.73 37,639.16 38,135.98
</TABLE>
10-YEAR RISK/REWARD CHART
December 31, 1984 - December 31, 1994
<TABLE>
<CAPTION>
Risk Average Annual
(%) Total Return
------ --------------
<S> <C> <C>
U. S. T-bills (30-day) 0.51 0.05628
Index Plus 8.096 0.1057
S & P 500 15.31271 0.1432
<FN>
(monthly standard deviation of returns)
</TABLE>
5-YEAR RISK/REWARD CHART
December 31, 1989 - December 31, 1994
<TABLE>
<CAPTION>
Risk Average Annual
(%) Total Return
------ --------------
<S> <C> <C>
U. S. T-bills (30-day) 0.492 0.0462
Index Plus 5.895 0.0915
S & P 500 12.412 0.087
<FN>
(monthly standard deviation of returns)
</TABLE>
14
<PAGE> 20
GATEWAY INDEX PLUS FUND
-----------------------
OVERVIEW
--------
The Index Plus Fund is designed for conservative investors whose
investment objective is to maximize total rate of return
over the long term. The Fund invests in the 100
stocks included in the S&P 100 Stock Index.
RISK
----
<TABLE>
<CAPTION>
12/31/84-12/31/94
Risk Measurement Index Plus S&P 500
- ---------------- ---------- -------
<S> <C> <C>
Standard Deviation 8.10% 15.31%
Beta 0.46 1.00
Number of Down Months 23 43
Number of Down Quarters 5 9
Number of Down Years 1 1
Best Month 5.83% 13.30%
2nd Best Month 4.43% 11.44%
3rd Best Month 4.28% 9.75%
Worst Month (16.71%) (21.70%)
2nd Worst Month (4.11%) (9.04%)
3rd Worst Month (3.91%) (8.30%)
</TABLE>
EXPENSES
--------
<TABLE>
<CAPTION>
Index Plus Stock Fund
Year Expenses Average Expenses
- ---- ---------- ----------------
<S> <C> <C>
1 $ 12.33 $ 39.64
2 25.13 53.08
3 38.41 66.97
4 52.19 81.32
5 66.50 96.14
6 81.35 111.45
7 96.76 128.60
8 112.76 146.37
9 129.36 164.78
10 146.59 183.85
</TABLE>
TOP TEN HOLDINGS
----------------
General Electric............. 6.1%
AT&T......................... 5.5
Exxon........................ 5.2
Coca-Cola.................... 4.6
Wal-Mart..................... 3.4
Merck........................ 3.3
IBM.......................... 3.0
DuPont....................... 2.7
Johnson & Johnson............ 2.4
Mobil........................ 2.3
15
<PAGE> 21
GATEWAY SMALL CAP INDEX FUND
----------------------------
OVERVIEW
--------
The Small Cap Index Fund is designed for an aggressive investor
who seeks long-term growth of capital. The Fund invests in the
250 stocks included in the Wilshire Small Cap Index.
RISK
----
<TABLE>
<CAPTION>
6/16/93-12/31/94
Risk Measurement Small Cap S&P 500
- ---------------- --------- -------
<S> <C> <C>
Standard Deviation 8.83% 8.76%
Beta 0.86 1.00
Number of Down Months 9 8
Number of Down Quarters 3 2
Number of Down Years 0 0
Best Month 5.36% 4.10%
2nd Best Month 3.54% 3.79%
3rd Best Month 2.61% 3.40%
Worst Month (4.64%) (4.36%)
2nd Worst Month (4.38%) (3.64%)
3rd Worst Month (3.45%) (2.71%)
</TABLE>
EXPENSES
--------
<TABLE>
<CAPTION>
Small Cap Stock Fund
Year Expenses Average Expenses
- ---- -------- ----------------
<S> <C> <C>
1 $ 15.26 $ 39.64
2 31.06 53.08
3 47.41 66.97
4 64.33 81.32
5 81.84 96.14
6 99.97 111.45
7 118.73 128.60
8 138.15 146.37
9 158.25 164.78
10 179.05 183.85
</TABLE>
TOP TEN HOLDINGS
----------------
Adaptec................ 1.0%
Teradyne............... 0.9
Oxford Health Plans.... 0.9
HBO.................... 0.8
Tosco.................. 0.8
Pittston Services...... 0.8
Health South........... 0.8
Reynolds & Reynolds.... 0.8
Continental Corp....... 0.8
BB&T Financial......... 0.8
17
<PAGE> 22
GATEWAY MID CAP INDEX FUND
--------------------------
OVERVIEW
--------
The Mid Cap Index Fund is designed for an aggressive investor
who seeks long-term growth of capital and a secondary objective
of conserving principal. The Fund invests in the 400 stocks
included in the S&P MidCap 400 Index.
RISK
----
<TABLE>
<CAPTION>
9/30/92-12/31/94
Risk Measurement Mid Cap S&P 500
- ---------------- ------- -------
<S> <C> <C>
Standard Deviation 7.68% 8.09%
Beta 0.87 1.00
Number of Down Months 12 9
Number of Down Quarters 4 2
Number of Down Years 1 0
Best Month 4.84% 4.10%
2nd Best Month 3.63% 3.79%
3rd Best Month 2.96% 3.40%
Worst Month (4.69%) (4.36%)
2nd Worst Month (4.46%) (3.64%)
3rd Worst Month (3.70%) (2.42%)
</TABLE>
<TABLE>
<CAPTION>
EXPENSES
--------
9/30/92-12/31/94
Mid Cap Stock Fund
Year Expenses Average Expenses
- ---- -------- ----------------
<S> <C> <C>
1 $ 15.26 $ 39.64
2 31.06 53.08
3 47.41 66.97
4 64.33 81.32
5 81.84 96.14
6 99.97 111.45
7 118.73 128.60
8 138.15 146.37
9 158.25 164.78
10 179.05 183.85
</TABLE>
<TABLE>
<CAPTION>
TOP TEN HOLDINGS
----------------
<S> <C>
General Motors Corp Class E............ 2.1%
Bank of New York....................... 1.1
Silicon Graphics....................... 0.9
EMC Corp............................... 0.9
Morgan Stanley Group................... 0.9
CUC International...................... 0.8
First Bank Systems..................... 0.8
First Financial Management............. 0.8
Washington Post Co..................... 0.7
Office Depot........................... 0.7
</TABLE>
16
<PAGE> 23
DIVIDENDS AND DISTIBUTIONS
--------------------------
Gateway investors may reinvest their dividends and distributions at no charge.
Shareholders of each Gateway fund may elect to receive distributions
either in cash or in additional shares of a fund. If you wish to receive your
distributions in cash, please mark the appropriate box on the New Account
Application Form. Once your account is opened, you may change the way your
distributions are handled by writing or calling Gateway.
GATEWAY INDEX PLUS FUND
The Index Plus Fund normally declares dividends at the end of March,
June, September and December. The amount of the quarterly dividend is based on
interest earned plus common stock dividends received by the Fund, minus
expenses.
If the Fund has net capital gains from stock or option transactions, it
normally declares a capital gains distribution at the end of December. The
capital gains distribution is calculated in accordance with tax regulations and
has varied substantially from year to year.
GATEWAY MID CAP INDEX FUND AND SMALL CAP INDEX FUND
The Mid Cap Index Fund and the Small Cap Index Fund each declares
dividends and net capital gains, if any, at the end of December.
FUND PRICING WHEN DIVIDENDS ARE DECLARED
The price of a Gateway fund is affected by its declaration of dividends
and capital gains distributions. The price of a fund, as adjusted for market
activity, generally drops by the amount of the declared dividend and capital
gains distribution. As an example, assume that on December 31, the Gateway
Index Plus Fund declares a dividend in the amount of $0.50 per share. If the
Fund's price per share was $16.50 on December 30, the Fund's price on December
31 would be $16.00. The decline of $0.50 per share would be the result of the
declaration of the $0.50 dividend.
TAX CONSEQUENCES OF BUYING A DIVIDEND
If you buy fund shares just before the fund declares a dividend, you
will pay the full price for the shares and then receive a portion of the price
back as a taxable distribution. In the example above, if you bought shares of
the Gateway Index Plus Fund on December 30, you would pay $16.50 per share. On
December 31, the Fund would pay you $0.50 per share as a dividend and your
shares would be worth $16.00 per share. The dividend paid to you would
generally be included in your gross income for tax purposes, whether or not you
reinvested the dividend. For this reason, you should carefully consider the
tax consequences of buying shares in a Gateway fund in late December.
18
<PAGE> 24
ABOUT THE INVESTMENT ADVISOR
----------------------------
INVESTMENT ADVISER
Gateway Investment Advisers, Inc., an Ohio corporation, acts as the
investment adviser for the funds. The Adviser has provided investment advisory
services to mutual funds since 1977. The principal officers of the Adviser,
Walter G. Sall and Peter W. Thayer, managed call option selling programs prior
to joining the Adviser in 1977. Messrs. Thayer and Sall, each of whom is an
officer and trustee of the Trust, together control the Adviser. As of December
31, 1994, the Adviser had approximately $650 million in assets under its
management, including approximately $190 million in assets invested in the
funds.
ADVISORY SERVICES
The Adviser provides each fund with investment research and advice.
The Adviser also places with brokers each fund's buy and sell orders for
portfolio securities. When the Adviser places these orders, it uses its best
efforts to obtain the most favorable price and execution available for the
fund, except to the extent that the fund may be permitted to pay higher
commissions for brokerage and research services pursuant to Section 28(e) of
the Securities Exchange Act of 1934. Consistent with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., the Adviser
may consider sales of fund shares as a factor in the selection of brokers to
execute fund portfolio transactions.
ADVISORY FEES
Each fund pays the Adviser an advisory fee calculated at an annual rate
of 0.90% of the first $50 million of the average daily net asset value of the
fund, 0.70% of the average daily net asset value of the fund in excess of $50
million but less than $100 million, and 0.60% on the average daily net asset
value of the fund in excess of $100 million. The Adviser waived advisory fees
of $81,284 for the Mid Cap Index Fund and $15,135 for the Small Cap Index Fund
in 1994. The advisory contracts require the Adviser to waive some or all of
its advisory fee as necessary to limit the Mid Cap Index Fund's expense ratio
to 1.50% of its average daily net assets and the Small Cap Index Fund's expense
ratio to 2.00% of its average daily net assets. The Adviser has voluntarily
agreed to waive some or all of its advisory fee as necessary to limit the Small
Cap Index Fund's expense ratio to 1.50% in 1995. Any contractual or voluntary
waiver will not exceed the aggregate advisory fee payable by the fund for the
applicable year.
FUND EXPENSES
Each fund pays all of its ordinary business expenses, other than
advertising and marketing expenses which are paid by the Adviser. Ordinary
business expenses include the advisory fees of the Adviser, custodial fees,
brokerage commissions, fees paid to the Adviser for providing shareholder
services, expenses incurred in the registration of the fund shares with federal
and state securities agencies, and expenses of printing and distributing a
fund's prospectus and shareholder reports. Expenses applicable to more than
one fund are generally allocated on the basis of the number of shareholders in
each fund. These collective expenses include certain printing and mailing
costs, professional fees, and insurance costs.
The Adviser provides shareholder, transfer, and dividend disbursing
services to each fund. The Adviser charges each fund a monthly minimum fee of
$2,500 for these shareholder services. Each fund reimburses the Adviser for
printing, mailing, compliance, and processing expenses associated with
providing the shareholder services. The portion of the reimbursement related
to processing expenses cannot exceed 0.20% of the fund's average net assets.
Each fund pays the Adviser a monthly fee of $4,000 for financial services
provided by the Adviser.
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<PAGE> 25
HOW FUND SHARES ARE PRICED
--------------------------
TIME OF PRICING
The net asset value (closing share price) of a fund ordinarily is
determined as of the close of the options exchanges (normally 4:15 PM Eastern
Time) on each day during which the options exchanges are open for trading.
Under unusual circumstances, the net asset value may be determined at other
times as authorized by the Board of Trustees. Net asset value is determined by
deducting the liabilities of a fund from the market or fair value of its
assets.
INDEX PLUS FUND
The Index Plus Fund normally values stocks and options traded on
national exchanges or markets at the last sale price on each trading day. If
no trading took place in a security on that day, the security is valued at the
average of the closing bid and asked quotations. If necessary when the last
sale price falls outside the closing bid/ask range, option prices are adjusted
to fall within the range.
Securities for which market quotations are not readily available (such
as written over-the-counter call options), securities in which trading has
been suspended during the day, and all other assets are valued at fair value.
Fair value is determined in good faith under procedures adopted by the Board
of Trustees. To determine the fair value of over-the-counter index call
options sold by the Fund, the Board of Trustees has adopted the use of matrix
pricing procedures. Such procedures utilize, among other factors, market
quotations for options on the same index with similar strike prices and
expiration dates.
MID CAP INDEX FUND AND SMALL CAP INDEX FUND
The Mid Cap Index Fund and the Small Cap Index Fund normally value
stocks and options at the average of the closing bid and asked quotations.
Securities for which market quotations are not readily available, securities in
which trading has been suspended during the day, and all other assets are
valued at fair value. Fair value is determined in good faith under procedures
adopted by the Board of Trustees.
20
<PAGE> 26
TAXES
-----
DIVIDENDS AND DISTRIBUTIONS
Each Gateway fund intends to distribute to its shareholders
substantially all of its net investment income and net capital gains, as
determined in accordance with appropriate tax regulations.
TAXES ON DIVIDENDS AND DISTRIBUTIONS
Each January you will receive a Form 1099-DIV from Gateway. It will
show the amount and federal income tax treatment of all distributions paid to
you during the year. Distributions of any net investment income and net
realized short-term capital gains are taxable to you as ordinary income,
whether or not you reinvest. Distributions of net long-term capital gains are
taxable as long-term capital gains, whether or not you reinvest and regardless
of how long you held your fund shares. For corporations, distributions of net
investment income from each fund may be eligible for the 70% dividends-received
deduction.
TAXES ON REDEMPTIONS AND EXCHANGES
Redemptions, including exchanges between Gateway funds, will be
reported to you on Form 1099-B.
TAXES ON IRAs
Contributions, investments and distributions with respect to IRAs are
subject to specific IRS rules. The SAI contains additional information about
these rules.
ADDITIONAL INFORMATION
The tax discussion set forth above and in the SAI is included for
general information only. You must determine the applicability of federal,
state and local taxes to dividends and distributions received on your fund
shares and to proceeds received from redemptions or exchanges of fund shares.
Prospective investors should consult their own tax advisors concerning the tax
consequences of an investment in a Gateway fund.
21
<PAGE> 27
INVESTMENT PRACTICES
--------------------
GATEWAY INDEX PLUS FUND
The investment objective of the Index Plus Fund is to achieve a high
total return at a reduced level of risk. The Fund is designed for conservative
investors who want to maximize total rate of return over the long term.
INVESTMENT PRACTICES: The Fund attempts to achieve its investment
objective primarily by investing in the 100 stocks included in the S&P 100
Stock Index (the "100 Index") and by selling call options on the 100 Index.
The proportion of the Fund's assets invested in each stock held in the Fund's
portfolio is substantially similar to the proportion of the 100 Index
represented by the stock. For example, if a stock represents 2% of the value
of the 100 Index, the Fund invests approximately 2% of its assets in the stock.
The Adviser seeks to maintain a correlation of at least 99% between the
composition of the 100 Index and the Fund's portfolio. The Adviser monitors
the composition of the 100 Index on a daily basis and makes adjustments to the
Fund's portfolio, as needed, to the nearest round lot.
When the Fund sells call options on the 100 Index, it receives cash
from the purchasers of the options. By selling options, the Fund attempts to
earn a greater total return over the long term than it would have earned by
investing only in the stocks in the 100 Index. Selling call options reduces
the risk of owning stocks, but limits the opportunity to profit from an
increase in the market value of stocks. The Fund occasionally buys put options
in an attempt to protect the Fund from a rapidly declining market. The value
of a put option generally increases as stock prices decrease.
The Fund is not affiliated with or sponsored by Standard and Poor's
Corporation.
GATEWAY MID CAP INDEX FUND
The Mid Cap Index Fund's primary investment objective is long-term
growth of capital with a secondary objective of conserving principal.
INVESTMENT PRACTICES: The Fund attempts to achieve its investment
objectives primarily by investing in the 400 stocks included in the S&P MidCap
400 Index (the "400 Index") and by purchasing put or call options on an index
as market conditions warrant. The Adviser seeks to maintain a correlation of
at least 90% between the composition of the 400 Index and the Fund's portfolio.
The Adviser monitors the composition of the 400 Index on a daily basis and
makes adjustments to the Fund's portfolio, as needed, to the nearest round lot.
At times, the Fund may purchase index put options to reduce the risk of
principal loss. The Fund occasionally buys index call options to increase the
potential for gain.
The 400 Index consists of common stock of 400 companies with a median
market capitalization of $1.1 billion, selected to reflect the stock price
performance of companies in the middle capitalization range. Stocks in the 400
Index were selected on the basis of market capitalization, liquidity and
industry group representation. The 400 Index was developed by Standard &
Poor's Corporation in 1991.
The Fund is not affiliated with or sponsored by Standard and Poor's
Corporation.
22
<PAGE> 28
INVESTMENT PRACTICES
--------------------
GATEWAY SMALL CAP INDEX FUND
The investment objective of the Small Cap Index Fund is to achieve
long-term growth of capital.
INVESTMENT PRACTICES: The Fund attempts to achieve its investment
objective primarily by investing in the 250 stocks included in the Wilshire
Small Cap Index (the "250 Index") and by purchasing put or call options on an
index as market conditions warrant. The Adviser seeks to maintain a
correlation of at least 90% between the composition of the 250 Index and the
Fund's portfolio. The Adviser monitors the composition of the 250 Index on a
daily basis and makes adjustments to the Fund's portfolio, as needed, to the
nearest round lot.
At times, the Fund may purchase index put options to reduce the risk of
principal loss. The Fund occasionally buys index call options to increase the
potential for gain.
The 250 Index focuses on capturing the performance profile of the small
capitalization sector of the United States equity market. The 250 Index
consists of common stock of 250 companies with a median market capitalization
of $490 million and is designed to accurately reflect the general
characteristics of small capitalization companies. Stocks in the 250 Index
were chosen on the basis of market capitalization, liquidity and industry group
representation. The 250 Index was developed by Wilshire Associates, Inc. in
conjunction with the Pacific Stock Exchange. Trading in the 250 Index began in
January 1993.
The Fund is not affiliated with or sponsored by Wilshire Associates,
Inc. or the Pacific Stock Exchange.
SELLING INDEX CALL OPTIONS
The Index Plus Fund regularly sells call options on the 100 Index. If
you are a shareholder in the Fund, it is important for you to understand some
basic information about this investment strategy and the risks involved in
option transactions.
It is easier to understand how index options work if you know some
basic concepts about a call option on an individual stock. A covered call
option on an individual stock is an option sold (written) on an individual
stock owned by the seller. The seller receives cash (a premium) from the
purchaser. If the option is not exercised by the purchaser, the seller realizes
a gain equal to the premium. This gain may be offset by a decline in the
market value of the underlying security. If the option is exercised by the
purchaser, the purchaser pays the seller the exercise price and the seller
delivers the underlying security. The premium, the exercise price and the
market value of the underlying security are combined to determine the gain or
loss realized by the seller. The seller's obligations terminate when the
option expires or when the seller enters into a closing purchase transaction.
The cost of entering into a closing transaction reduces any gain realized by
the seller.
A covered call option on a securities index is similar to an option on
an individual stock. However, the seller does not deliver the underlying
securities if the option is exercised. Index option transactions are settled
in cash. The seller pays the purchaser an amount equal to the difference
between the closing price of the index and the exercise price of the option.
The premium and the settlement amount are combined to determine the gain or
loss realized by the seller.
23
<PAGE> 29
INVESTMENT PRACTICES
--------------------
RISK FACTORS
There are risks inherent in all securities investments. Thus, there
can be no assurance that any Gateway fund will be able to achieve its
investment objective(s). Because each Gateway fund has long-term investment
objectives, none may be an appropriate investment for persons intending to hold
fund shares for less than six months.
INVESTMENTS IN SMALLER COMPANIES: Investments in companies with
smaller capitalization are generally more speculative than investments in
companies with larger capitalization. However, stocks of smaller companies
tend to have more growth potential. The Mid Cap Index Fund and the Small Cap
Index Fund attempt to provide shareholders with the opportunity to participate
in the potential long-term growth of smaller companies while reducing the risks
of investments in such companies through appropriate option strategies.
SELLING INDEX CALL OPTIONS: Option transactions involve risks not
generally associated with investments in stocks. The sale of call options by
the Index Plus Fund limits the Fund's opportunity to profit from an increase in
the market value of the underlying index. If the Fund sells exchange-traded
call options to hedge its portfolio, the purchaser usually has the right to
exercise the options at any time prior to the expiration date. The purchaser
normally exercises the options when it is to the purchaser's advantage rather
than the Fund's advantage. In addition, the Fund generally does not receive
notice of the exercise until the next business day. As a result, the Fund's
portfolio is not fully hedged between the time the options are exercised and
the time the Fund sells new call options on the next business day. To
eliminate the risk of early exercise, the Index Plus Fund generally sells
European-style options. European-style options may only be exercised on the
expiration date.
PURCHASING INDEX OPTIONS: The purchase of index options involves a
risk of loss of all or part of the cash paid for the options.
CLOSING OPTION TRANSACTIONS: There can be no assurance that a ready
market will exist for any particular option at a specific time. Closing
transactions for over-the-counter options generally must be negotiated with the
other party. These factors could limit the Adviser's ability to close a
particular option transaction at a fair price or in a timely manner or to carry
out a particular investment or hedging strategy. A Gateway fund will enter
into an option transaction only if there appears to be a ready market for such
options or the fund can effectively close its position by entering into an
offsetting position.
HEDGING STRATEGIES: The use of index options to protect or hedge a
Gateway fund's portfolio will not fully protect the fund against declines in
the market value of the securities held in the fund's portfolio. The Adviser
may not use all of the available hedging strategies to protect the fund's
portfolio. The Adviser may also hedge the fund's portfolio at an inappropriate
time or incorrectly anticipate market conditions. In addition, the fund could
experience a loss on both its portfolio securities and the options used to
hedge these securities. Under unusual market conditions, such as an
interruption in trading in an index or certain stocks in the index, the Adviser
may be unable to hedge the fund's portfolio effectively. Restrictions imposed
by regulatory agencies may also adversely affect the fund's hedging strategy.
24
<PAGE> 30
INVESTMENT PRACTICES
--------------------
REGULATORY ISSUES: Due to the option strategies employed by the
Adviser in managing the portfolios of each Gateway fund, it may be more
difficult for the fund to qualify as a regulated investment company. Failure
to qualify as a regulated investment company could subject the fund to certain
tax liabilities and could affect the ability of the fund to meet the regulatory
requirements of certain states. In this case, the Adviser might employ
investment techniques different from those usually employed by the fund in
order to reduce the potential tax liability and to resolve the regulatory
issues.
OTHER INVESTMENT STRATEGIES
Each Gateway fund may hold cash for purposes of liquidity or for
temporary defensive purposes. Cash is normally invested in repurchase
agreements. Cash may also be invested in securities of the U. S. government or
any of its agencies, bankers acceptances, commercial paper or certificates of
deposit. For temporary defensive purposes, each Gateway fund may hold up to
100% of its assets in such instruments.
REPURCHASE AGREEMENTS: In a repurchase agreement, a fund acquires
securities suitable for investments in accordance with its policies and the
seller (usually a bank) agrees at the time of sale to repurchase such
securities at an agreed-upon date, price and interest rate. Investments in
repurchase agreements are subject to the risk that the selling bank may default
on its repurchase obligation. Investments in repurchase agreements are also
subject to the risk that the selling bank may become financially insolvent
which could prevent or delay the fund's disposition of the collateral held as
security for these transactions. Each Gateway fund's repurchase agreements are
fully collateralized and the fund takes possession of such collateral, thus
reducing the risk of default. The collateral is subject to continuing market
fluctuations and its value could be more or less than the repurchase price.
ADDITIONAL INFORMATION
For further information concerning the investment practices described
above and certain risks associated with them, see "Investment Objectives and
Practices" in the SAI.
FUNDAMENTAL POLICIES
The investment objectives and investment restrictions applicable to
each Gateway fund are designated as fundamental policies of the fund. Such
fundamental policies may not be changed without approval of the holders of a
majority of the fund's outstanding shares.
The investment practices and strategies of each Gateway fund as
described above are not fundamental policies and may be changed without
shareholder approval.
25
<PAGE> 31
INVESTMENT RESTRICTIONS
-----------------------
INVESTMENT RESTRICTIONS
Certain investment restrictions applicable to the Gateway funds are
described below. The complete text of these restrictions is set forth in the
SAI under the caption "Other Information about Investment Practices and
Restrictions." Additional investment restrictions pertaining to the funds are
set forth in the SAI under the same caption.
OPTIONS ON SECURITIES INDEXES: No Gateway fund may purchase or sell put
options, call options or combinations thereof except in accordance with its
investment objectives and practices and the following restrictions. The Index
Plus Fund may sell covered call options on securities indexes. The Index Plus
Fund may purchase exchange-traded put options on securities indexes, provided
that after any such purchase not more than 5% of the fund's net assets would be
invested in premiums on the purchase of such options. The Mid Cap Index Fund
and the Small Cap Index Fund may purchase exchange-traded call and put options
on securities indexes, provided that after any such purchase not more than 5%
of the fund's net assets would be invested in premiums on the purchase of such
options. Each Gateway fund may enter into closing purchase transactions with
respect to options.
REPURCHASE AGREEMENTS: No Gateway fund may invest more than 5% of its
total assets in repurchase agreements with a maturity longer than seven days.
26
<PAGE> 32
GENERAL INFORMATION ABOUT GATEWAY
---------------------------------
THE TRUST AND THE BOARD OF TRUSTEES
The Gateway Trust is an open-end management investment company
established as an Ohio business trust in 1986. From 1977 to 1986, the Trust's
predecessor operated as a Maryland corporation. The Trust has four series: the
Gateway Index Plus Fund, the Gateway Mid Cap Index Fund (formerly the Gateway
Capital Fund), the Gateway Small Cap Index Fund and the Cincinnati Fund. The
Cincinnati Fund is offered by a separate prospectus.
The Board of Trustees is generally responsible for management of the
business and affairs of the Trust. The Trustees formulate the general policies
of the Trust, approve contracts and authorize the Trust officers to carry out
the decisions of the Board.
Under the Trust's Second Amended Agreement and Declaration of Trust, no
annual or regular meetings of shareholders are required. As a result, the
Trustees will continue in office until resignation, death or removal. Trustee
vacancies normally are filled by vote of the remaining Trustees. If at any
time less than a majority of the Trustees in office has been elected by the
shareholders, the Trustees must call a shareholder meeting for the purpose of
electing Trustees.
SHAREHOLDER MEETINGS AND VOTING
A meeting of shareholders must be called if shareholders holding at
least 10% of the Trust's shares (or shareholders holding at least 10% of any
fund's shares as to any matter affecting only such fund) file a written request
for a meeting.
On any matter submitted to a vote of shareholders, shares are voted by
fund, unless an aggregate vote is required by the Investment Company Act of
1940. Shares are voted by fund with respect to the approval or amendment of
such fund's advisory contract. As of December 31, 1994, the Adviser held, in a
fiduciary capacity, more than 25% of the outstanding shares of the Mid Cap
Index Fund and the Small Cap Index Fund. Thus, the Adviser was deemed to be a
control person of each of these funds as of that date.
As of December 31, 1994, the shareholders of the Index Plus Fund
controlled approximately 84% of the outstanding shares of the Trust.
Therefore, in the foreseeable future, when the shareholders of the Trust elect
the Trustees or vote in the aggregate on any other issue, the shareholders of
the Index Plus Fund will be able to elect the Trustees or to decide the issue.
Shareholders do not have cumulative voting rights as to the election of
Trustees. As a result, if a shareholder meeting is called to elect Trustees, a
majority of the shares voting at the meeting can elect all of the Trustees.
27
<PAGE> 33
THE GATEWAY TRUST
SUPPLEMENT DATED DECEMBER 15, 1995
TO
PROSPECTUS DATED MAY 1, 1995
================================================================================
The following material supplements the Prospectus dated May 1, 1995, of
the Gateway Index Plus Fund, the Gateway Mid Cap Index Fund and the Gateway
Small Cap Index Fund (the "Funds"), and particularly the information contained
under "Investment Adviser" at page 19 of the Prospectus. Each of the Funds is a
series of The Gateway Trust (the "Trust").
Shareholders of the Funds approved a new investment advisory contract
between the Funds and Gateway Investment Advisers, L.P. (the "Adviser"), which
became effective December 15, 1995. The Adviser is the successor in interest to
the assets, business and personnel of Gateway Investment Advisers, Inc. ("GIA").
GIA has acted as investment adviser since the formation of the Funds and is now
the general partner of the Adviser with a 76% partnership interest. The sole
limited partner of the Adviser is Alex. Brown Investments Incorporated, an
affiliate of Alex. Brown & Sons Incorporated ("Alex. Brown"), a nationally known
investment banking firm and registered broker/dealer located in Baltimore,
Maryland.
Walter G. Sall, as Chairman and Trustee, and Peter W. Thayer, as
President and Trustee, will maintain those positions with the Trust. The
principal and controlling shareholders of GIA, Mr. Sall and J. Patrick Rogers,
have been appointed Chairman and President of GIA, respectively.
There has been no change in advisory fees paid by the Trust or
management personnel of the Adviser as a result of the approval of the advisory
contracts.
The Adviser has entered into an Advisory Referral Agreement with Alex.
Brown under which the Adviser will pay to Alex. Brown an amount equal to
one-half the advisory fees earned by the Adviser relating to shareholders of the
Funds that have been directed to the Adviser by Alex. Brown or any of its
affiliates.
Also effective December 15, 1995, the Adviser became the Shareholder
Servicing, Transfer, Dividend Disbursing and Financial Servicing Agent for the
Trust. This change will not affect the processing of an account or the services
provided for the Funds' shareholders.
<PAGE> 34
Registration Statement
Securities Act of 1933 Registration No. 2-59895
Investment Company Act of 1940 Registration No. 811-02773
THE GATEWAY TRUST
STATEMENT OF ADDITIONAL INFORMATION
This Statement is not a prospectus but should be read in conjunction with the
current Prospectus of The Gateway Trust (the "Trust") for the Gateway Index
Plus, Mid Cap Index, and Small Cap Index Funds dated May 1, 1995, and supplement
thereto dated December 15, 1995. A copy of the Prospectus may be obtained from
the Trust, by written or telephone request, directed to the Trust at the address
or the telephone number shown below.
The date of this Statement of Additional Information is December 15, 1995.
P. O. Box 5211, Cincinnati, Ohio 45201-5211
(800) 354-6339
<PAGE> 35
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION.........................................................................................4
General Information about Gateway Trust.....................................................4
INVESTMENT OBJECTIVES AND PRACTICES..................................................................5
Gateway Index Plus Fund.....................................................................5
Gateway Mid Cap Index Fund..................................................................5
Gateway Small Cap Index Fund................................................................6
OPTION TRANSACTIONS..................................................................................6
Selling Covered Call Options................................................................6
Selling Covered Put Options.................................................................7
Purchase of Put and Call Options............................................................7
Options on Securities Indexes...............................................................8
Covered Index Call Options Sold by the Index Plus Fund......................................8
INVESTMENT PRACTICES, RISKS AND RESTRICTIONS.........................................................9
Other Investment Practices..................................................................9
Certain Risks...............................................................................10
Investment Restrictions.....................................................................11
PERFORMANCE AND RISK INFORMATION.....................................................................14
Performance Information.....................................................................14
Total Return Calculations..........................................................14
Historical Results.................................................................15
Risk Information............................................................................16
Comparative Indexes................................................................16
Standard Deviation.................................................................17
Beta...............................................................................17
Rankings and Comparative Performance Information............................................17
SHAREHOLDER SERVICES.................................................................................18
Shareholder Account.........................................................................18
Automatic Investment Plan...................................................................18
Systematic Withdrawal Plan..................................................................18
IRAs........................................................................................19
Qualified Pension and Profit Sharing Plans..................................................22
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.......................................................22
INVESTMENT ADVISORY AND OTHER SERVICES...............................................................24
Gateway Investment Advisers, L.P............................................................24
Investment Advisory Contracts...............................................................25
Custodian...................................................................................28
Shareholder Servicing, Transfer, Dividend Disbursing and Financial Servicing Agent..........28
BROKERAGE AND PORTFOLIO TURNOVER.....................................................................29
Brokerage...................................................................................29
Portfolio Turnover..........................................................................31
</TABLE>
Page 2
<PAGE> 36
<TABLE>
<S> <C>
ADDITIONAL TAX MATTERS...............................................................................32
Federal Tax Matters.........................................................................32
State and Local Tax Aspects.................................................................33
TRUSTEES AND OFFICERS OF THE TRUST...................................................................33
COUNSEL..............................................................................................35
INDEPENDENT PUBLIC ACCOUNTANTS AND FINANCIAL STATEMENTS..............................................35
PRINCIPAL HOLDERS OF FUND SHARES.....................................................................35
Index Plus Fund.............................................................................35
Mid Cap Index Fund..........................................................................36
Small Cap Index Fund........................................................................37
Shares Held By Adviser......................................................................37
SCHEDULE A...........................................................................................38
SCHEDULE B...........................................................................................40
SCHEDULE C...........................................................................................44
SCHEDULE D...........................................................................................47
</TABLE>
Page 3
<PAGE> 37
INTRODUCTION
GENERAL INFORMATION ABOUT GATEWAY TRUST
The Gateway Trust (the "Trust") is an Ohio business trust which is
authorized to establish and operate one or more separate series of mutual funds
(herein referred to as "funds" or individually as a "fund"). At present, there
are four series of the Trust:
Name of Fund Date Organized
- ------------------------------------------------------------------------
Gateway Index Plus Fund 1977
Gateway Mid Cap Index Fund July 1992
Gateway Small Cap Index Fund April 1993
Cincinnati Fund November 1994
Gateway Index Plus Fund was known as Gateway Option Index Fund until
March, 1990; as Gateway Option Income Fund until February, 1988; and as Gateway
Option Income Fund, Inc. until May, 1986. Gateway Mid Cap Index Fund was known
as Gateway Capital Fund until December, 1993.
Gateway Option Income Fund, Inc., the predecessor to the Trust, was
organized in 1977 as a Maryland corporation. It was reorganized to become the
Trust effective as of May 2, 1986, with the Gateway Option Income Fund as its
sole initial fund. As a result of the transaction, shareholders of the
corporation on May 2, 1986, became shareholders of the Option Income Fund.
The Gateway Index Plus Fund, the Gateway Mid Cap Index Fund, and the
Gateway Small Cap Index Fund are offered in one combined prospectus (the
"Combined Prospectus"). The Cincinnati Fund is offered in a separate prospectus
and Statement of Additional Information.
Each fund has its own investment policies, restrictions, practices,
assets, and liabilities. Each fund is represented by a separate series of shares
of beneficial interest in the Trust ("Shares"). The Trust's operation is
governed by Chapter 1746 of the Ohio Revised Code, by the Second Amended
Agreement and Declaration of Trust dated as of December 29, 1992, as amended,
and by the Trust's By-laws, as amended.
Page 4
<PAGE> 38
INVESTMENT OBJECTIVES AND PRACTICES
GATEWAY INDEX PLUS FUND
The Index Plus Fund's investment objective is to achieve a high total
return at a reduced level of risk. Descriptions of the Fund's current investment
practices and strategies and certain risk factors applicable to the Fund are set
forth under the caption "Investment Practices" in the Combined Prospectus.
The Index Plus Fund primarily invests in a portfolio of common stocks
which parallels the composition of the Standard & Poor's 100 Stock Index (the
"100 Index"). A list of the companies whose stocks are included in the 100 Index
is set forth in Schedule "A" to this Statement. The Fund sells call options on
the 100 Index and, when appropriate, enters into closing purchase transactions
with respect to such options. The Fund occasionally purchases put options on
securities indexes.
In addition, the Fund has authority to, and when deemed appropriate
may, invest in the stocks of other securities indexes, sell call or put options
on securities indexes, purchase call or put options on securities indexes, sell
covered call options on individual stocks, sell covered put options on
individual stocks, and purchase call or put options on individual stocks.
GATEWAY MID CAP INDEX FUND
The Mid Cap Index Fund's primary investment objective is long-term
growth of capital with a secondary objective of conserving principal.
Descriptions of the Fund's current investment practices and strategies and
certain risk factors applicable to the Fund are set forth under the caption
"Investment Practices" in the Combined Prospectus.
The Mid Cap Index Fund primarily invests in a portfolio of common
stocks which parallels the composition of the S&P MidCap 400 Index (the "400
Index"). A list of the companies whose stocks are included in the 400 Index is
set forth in Schedule "B" to this Statement. Because the 400 Index is composed
of four hundred equity securities and the Fund purchases such securities in
round lots, the portfolio does not correlate perfectly with the 400 Index.
Although Gateway Investment Advisers, L.P., the Adviser to the Funds ("Adviser")
monitors the Mid Cap Index Fund portfolio so that the percentage of assets
invested in each stock in the Mid Cap Index Fund substantially corresponds to
the composition of 400 Index, the Fund bears the risk that the price of its
portfolio will not increase as much as (or will decrease more than) the 400
Index.
The Mid Cap Index Fund occasionally engages in the purchase of put and
call options on securities indexes, such as the S&P 500 Index, the 400 Index and
similar middle capitalization securities indexes. The Mid Cap Index Fund limits
its aggregate investment in premiums on put and call options to an amount not
exceeding 5% of the Fund's net assets.
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<PAGE> 39
GATEWAY SMALL CAP INDEX FUND
The investment objective of the Small Cap Index Fund is to achieve
long-term growth of capital. Descriptions of the Fund's current investment
practices and strategies and certain risk factors applicable to the Fund are set
forth under the caption "Investment Practices" in the Combined Prospectus.
The Small Cap Index Fund primarily invests in a portfolio of common
stocks which parallels the composition of the Wilshire Small Cap Index (the "250
Index"). A list of the companies whose stocks are included in the 250 Index is
set forth in Schedule "C" to this Statement. Because the 250 Index is comprised
of 250 equity securities and the Fund purchases such securities in round lots,
the portfolio does not correlate perfectly with the 250 Index. Although the
Adviser monitors the Small Cap Index Fund portfolio so that the percentage of
assets invested in each stock in the Small Cap Index Fund substantially
corresponds to the composition of 250 Index, the Fund bears the risk that the
price of its portfolio will not increase as much as (or will decrease more than)
the 250 Index.
The Small Cap Index Fund occasionally engages in the purchase of put
and call options on securities indexes, such as the S&P 500 Index, the 250
Index, the Russell 2000 Index, and comparable small capitalization securities
indexes. The Small Cap Index Fund limits its aggregate investment in premiums on
put and call options to an amount not exceeding 5% of the Fund's net assets.
Options on the 250 Index are a relatively new investment vehicle and the
secondary market for any particular option on this index at a specific time may
be limited.
OPTION TRANSACTIONS
This section contains a brief general description of various types of
options, certain option trading strategies and some of the risks of option
trading. It is included to help a shareholder understand the investment
practices of the funds. It is easier to understand index options if you
understand options on individual stocks. For this reason, the first three parts
of this section discuss individual stock options.
SELLING COVERED CALL OPTIONS
A covered call option is an option sold on a security owned by the
seller of the option. If the option is exercised by the purchaser during the
option period, the seller is required to deliver the underlying security against
payment of the exercise price. The seller's obligation terminates upon
expiration of the option period or when the seller executes a closing purchase
transaction with respect to such option.
The seller of a covered call option gives up, in return for the
premium, the opportunity to profit from an increase in the value of the
underlying security above the exercise price. At the same time, the seller
retains the risk of loss from a decline in the value of the underlying security
during the option period. Although the seller may terminate its obligation by
executing a closing
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<PAGE> 40
purchase transaction, the cost of effecting such a transaction may be greater
than the premium received upon its sale, resulting in a loss to the seller. If
such an option expires unexercised, the seller realizes a gain equal to the
premium received. Such a gain may be offset or exceeded by a decline in the
market value of the underlying security during the option period. If an option
is exercised, the exercise price, the premium received and the market value of
the underlying security are combined to determine the gain or loss realized by
the seller.
The Index Plus Fund is the only Gateway fund authorized to sell covered
call options. A more complete description of the details and risks involved in
selling covered call options is set forth below under the caption "Sale of
Covered Call Index Options by the Index Plus Fund."
SELLING COVERED PUT OPTIONS
The seller of a covered put option has the obligation to buy, and the
purchaser the right to sell, the underlying security at the exercise price
during the option period. To cover a put option, a seller usually deposits U. S.
government securities (or other high grade debt obligations) in a segregated
account at the seller's custodian. The value of the deposited securities is
equal to or greater than the exercise price of the underlying security. The
value of the deposited securities is marked to market daily and, if necessary,
additional assets are placed in the segregated account to maintain a value equal
to or greater than the exercise price. The seller maintains the segregated
account so long as it is obligated as the seller. The obligation of the seller
is terminated when the purchaser exercises the put option, when the option
expires, or when a closing purchase transaction is effected by the seller.
The seller's gain on the sale of a put option is limited to the premium
received plus interest earned on its segregated account. The seller's potential
loss on a put option is determined by combining the exercise price of the
option, the market price of the underlying security when the put is exercised,
the premium received, and the interest earned on its segregated account.
Although a seller risks a substantial loss if the price of the stock on which it
has sold a put option drops suddenly, the seller can protect itself against
serious loss by entering into a closing purchase transaction. The degree of loss
will depend upon the seller's ability to detect the movement in the stock's
price and to execute a closing transaction at the appropriate time.
The Index Plus Fund is the only Gateway fund authorized to sell covered
put options. To date, the Fund has never sold a covered put option. To comply
with state securities requirements, the Fund will not sell any covered put
option if, as a result, the Fund would have to invest more than 50% of its total
assets (taken at current value) to meet its obligation upon the exercise of put
options.
PURCHASE OF PUT AND CALL OPTIONS
Put options can be employed to protect against declines in the market
value of portfolio securities or to attempt to retain unrealized gains in the
value of portfolio securities. Put options might also be purchased to facilitate
the sale of portfolio securities. Call options can be
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purchased as a temporary substitute for the purchase of individual stocks, which
then could be purchased in orderly fashion. Upon the purchase of the stocks, the
purchaser would normally terminate the call position.
The purchase of both put and call options involves the risk of loss of
all or part of the premium paid. If the price of the underlying stock does not
rise (in the case of a call) or drop (in the case of a put) by an amount at
least equal to the premium paid for the option contract, the purchaser will
experience a loss on the option contract equal to the deficiency.
The Index Plus Fund, the Mid Cap Index Fund and the Small Cap Index
Fund each are authorized to purchase put and call options. Each fund limits its
aggregate investment in premiums on put and call options to an amount not
exceeding 5% of its net assets.
OPTIONS ON SECURITIES INDEXES
An option on a securities index is generally similar to an option on an
individual stock, but an option on a securities index is settled only in cash.
The exercising holder of an index option, instead of receiving a security,
receives the difference between the closing price of the securities index and
the exercise price of the index option times a specified multiple ($100 in the
case of the S&P 100 Stock Index). The seller of index options may realize a gain
or loss according to movement in the level of securities prices in that index
and in the securities markets generally.
COVERED INDEX CALL OPTIONS SOLD BY THE INDEX PLUS FUND
The Index Plus Fund sells call options on the 100 Index in an attempt
to earn a greater total return over the long term than it would earn by
investing only in the stocks in the 100 Index.
Frequently the Fund executes a closing purchase transaction with
respect to the option it has sold and sells another option (with either a
different exercise price or expiration date or both) on the 100 Index. The
Fund's objective in entering into such closing transactions is to increase
option premium income, to limit losses, or to protect anticipated gains in
underlying stocks. The cost of a closing transaction, while reducing the premium
income realized from the sale of the option, should be offset, at least in part,
by appreciation in the value of the underlying index, and by the opportunity to
realize additional premium income from selling a new option.
When the Fund sells a call option on the 100 Index, it does not deliver
the underlying stocks or cash to the broker through whom the transaction is
effected. In the case of an exchange-traded option, the Fund establishes an
escrow account. The Trust's Custodian (or a securities depository acting for the
Custodian) acts as the Trust's escrow agent. The escrow agent enters into
documents known as escrow receipts with respect to the stocks included in the
100 Index (or escrow receipts with respect to other acceptable securities). The
escrow agent releases the stocks from the escrow account when the call option
expires or the Fund enters into a closing purchase transaction. Until such
release, the underlying stocks cannot be sold by the
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Fund. The Fund may enter into similar collateral arrangements with the
counterparty when it sells over-the-counter index call options.
When the Fund sells a call option on the 100 Index, it is also required
to "cover" the option pursuant to requirements enunciated by the staff of the
Securities and Exchange Commission. The staff has indicated that a mutual fund
may "cover" an index call option by (1) owning and holding for the term of the
option the securities against which the call option is written, (2) purchasing
an American-style call option on the same index with an exercise price no
greater than the exercise price of the written option, or (3) establishing and
maintaining for the term of the option a segregated account consisting of cash,
U.S. government securities or other high-grade debt securities, equal in value
to the aggregate contract price of the call option (the current index value
times the specific multiple). The Fund generally "covers" the index options it
has sold by owning and holding the stocks included in the 100 Index. As an
alternative method of "covering" the option, the Fund may purchase an
appropriate offsetting option on the 100 Index.
The purchaser of an index call option sold by the Fund may exercise the
option at a price fixed as of the closing level of the 100 Index on the date of
exercise. Unless the Fund has liquid assets sufficient to satisfy the exercise
of the index call option, the Fund would be required to liquidate portfolio
securities to satisfy the exercise. The market value of such securities may
decline between the time the option is exercised and the time the Fund is able
to sell the securities. If the Fund fails to anticipate an exercise, it may have
to borrow from a bank (in amounts not exceeding 5% of the Fund's total assets)
pending settlement of the sale of the portfolio securities and thereby incur
interest charges. If trading is interrupted on the 100 Index, the Fund would not
be able to close out its option positions.
The Index Plus Fund has the authority to sell covered call options on
indexes other than the 100 Index. If the Fund did so, considerations similar to
those described above would be applicable to such options.
Additional information about the Fund's investment practices and
strategies with respect to option transactions, and certain risks related to
such transactions, is set forth under the caption "Investment Practices" in the
Combined Prospectus.
INVESTMENT PRACTICES, RISKS AND RESTRICTIONS
OTHER INVESTMENT PRACTICES
Each fund generally will hold cash reserves for the purpose of paying
expenses and share redemptions. In addition, each fund may hold cash received
from the sale of its shares which it has not yet invested. The Adviser may
determine, from time to time, that one or more funds should temporarily reduce
(and in periods of unusual market conditions reduce substantially or liquidate
entirely) its investment in common stocks. Cash held by a fund, for whatever
reason, may be invested in securities of the U. S. government or any of its
agencies, bankers'
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acceptances, commercial paper or certificates of deposit (collectively "cash
equivalents") or repurchase agreements.
Commercial paper investments will be limited to investment grade issues
rated A-1 or A-2 by Standard & Poors Corporation or Prime-1 or Prime-2 by
Moody's Investors Service, Inc. Certificates of deposit investments will be
limited to obligations of domestic banks with assets of $1 billion or more.
During 1994, no fund invested, and during the current year none of the funds
intends to invest, more than 5% of its net asset value in cash equivalents.
Repurchase agreements are instruments under which the fund buys
securities suitable for investment under its policies and obtains the concurrent
agreement of the seller (usually a bank) to repurchase such securities at an
agreed-upon date, price and interest rate. Investments in repurchase agreements
are subject to the risk that the selling bank may default in its repurchase
obligation. However, not more than 5% of any fund's total assets may be invested
in repurchase agreements which have a maturity longer than seven days.
CERTAIN RISKS
The success of each fund's option strategy depends upon the ability of
the Adviser to identify an appropriate index in which to invest and the
Adviser's ability to enter into transactions involving index options at
appropriate times in the stock market cycle. In pursuing this course, the
Adviser is subject to the risks of change in general economic conditions,
adverse developments in specific industries and factors affecting the
performance of individual stocks.
Standard and Poor's Corporation ("S&P") obtains information for
inclusion in or for use in the calculation of the S&P 100 Index and the S&P
MidCap 400 Index from sources which S&P considers reliable. S&P HAS ADVISED THE
TRUST THAT IT MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE
OBTAINED BY THE TRUST, OWNERS OF THE INDEX PLUS FUND OR THE MID CAP INDEX FUND,
OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 100 INDEX, THE S&P MIDCAP
400 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL SUCH WARRANTIES, OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, FOR USE WITH RESPECT TO THE
S&P 100 INDEX, THE S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED THEREIN.
Wilshire Associates, Inc. ("Wilshire") obtains information for
inclusion in or for use in the calculation of the Wilshire Small Cap Index from
sources which Wilshire considers reliable. WILSHIRE HAS ADVISED THE TRUST THAT
IT MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE
TRUST, OWNERS OF THE SMALL CAP INDEX FUND, OR ANY OTHER PERSON OR ENTITY FROM
THE USE OF THE WILSHIRE SMALL CAP INDEX OR ANY DATA INCLUDED THEREIN. WILSHIRE
MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL SUCH
WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, FOR USE WITH
RESPECT TO THE WILSHIRE SMALL CAP INDEX OR ANY DATA INCLUDED THEREIN.
Other risks related to the investment practices and strategies of each
fund are described in the under the caption "Investment Practices" in the
Combined Prospectus.
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INVESTMENT RESTRICTIONS
The Trust has adopted certain fundamental policies with respect to each
of the funds that may not be changed without a vote of shareholders of that
fund. Under these policies, the Index Plus Fund, the Mid Cap Index Fund, and the
Small Cap Index Fund each are subject to the following restrictions:
1. A fund may not purchase any security if, as a result, the fund
(or the funds together) would then hold more than 10% of any
class of securities of an issuer (taking all common stock issues
of an issuer as a single class, all preferred stock issues as a
single class, and all debt issues as a single class) or more
than 10% of the outstanding voting securities of an issuer.
2. A fund may not purchase any security if, as a result, the fund
would then have more than 5% of its total assets (taken at
current value) invested in securities of companies (including
predecessors) less than three years old and in equity securities
for which market quotations are not readily available.
3. A fund may not purchase securities on margin (but the fund may
obtain such short-term credits as may be necessary for the
clearance of purchase and sales of securities).
4. A fund may not make short sales of securities or maintain a
short position, (a) unless, at all times when a short position
is open, the fund owns an equal amount of such securities or
securities convertible into or exchangeable (without payment
of any further consideration) for securities of the same issue
as, and equal in amount to, the securities sold short, and (b)
unless not more than 10% of such fund's net assets (taken at
current value) are held as collateral for such sales at any
one time. It is the present intention of management to make
such sales only for the purpose of deferring realization of
gain or loss for Federal income tax purposes. It is the
present intention of management that short sales of securities
subject to outstanding options will not be made.
5. A fund may not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only from banks and
only in amounts not in excess of 5% of the fund's total assets
(except to meet redemption requests as discussed below), taken
at the lower of cost or market. In order to meet redemption
requests without immediately selling any portfolio securities, a
fund may borrow in an amount up to one-quarter of the value of
its total assets including the amount borrowed. If due to market
fluctuations or other reasons the value of such fund's assets
falls below 400% of its borrowing, the fund will reduce its
borrowing which may
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result in the fund being required to sell securities at a time
when it may otherwise be disadvantageous to do so. This
borrowing is not for investment leverage, but solely to
facilitate management of the portfolio by enabling the fund to
meet redemption requests where the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous.
However, the fund might be deemed to be engaged in leveraging in
that any such borrowing will enable the fund to continue to earn
money on investments which otherwise may have been sold in order
to meet redemption requests.
6. A fund may not pledge more than 10% of its total assets, taken
at market value. (The deposit in escrow of underlying securities
in connection with the writing of call options is not deemed to
be a pledge.)
7. A fund may not purchase or retain securities of any company if,
to the knowledge of the Trust, officers and trustees of the
Trust or of the Adviser who individually own more than one-half
of 1% of the securities of that company, together own
beneficially more than 5% of such securities.
8. A fund may not buy or sell commodities or commodity contracts,
or real estate or interests in real estate, although it may
purchase and sell (a) securities which are secured by real
estate and (b) securities of companies which invest or deal in
real estate.
9. A fund may not act as underwriter except to the extent that, in
connection with the disposition of portfolio securities, it may
be deemed to be an underwriter under certain provisions of the
Federal securities laws.
10. A fund may not make investments for the purpose of exercising
control or management.
11. A fund may not participate on a joint basis, or a joint and
several basis, in any trading account in securities.
12. A fund may not purchase any security restricted as to
disposition under the Federal securities laws.
13. A fund may not invest in securities of other investment
companies, except as part of a merger, consolidation or other
acquisition.
14. A fund may not invest in interests in oil, gas or other mineral
exploration or development programs, although it may invest in
the common stocks of companies which invest in or sponsor such
programs.
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<PAGE> 46
15. A fund may not make loans, except through the purchase of bonds,
debentures, commercial paper, corporate notes and similar
evidences of indebtedness of a type commonly sold privately to
financial institutions (subject to the limitation in paragraph
12 above), and except through repurchase agreements. No more
than 5% of the fund's assets will be invested in repurchase
agreements which have a maturity longer than seven days. In
addition, the fund will not enter into repurchase agreements
with a securities dealer if such transactions constitute the
purchase of an interest in such dealer under the Investment
Company Act of 1940. The purchase of a portion of an issue of
such securities distributed publicly, whether or not such
purchase is made on the original issuance, is not considered the
making of a loan.
16. A fund may not purchase any security (other than U. S.
Government obligations) if, as a result thereof, less than 75%
of the value of the fund's total assets is represented by cash
and cash items (including receivables), Government securities
and other securities which, for purposes of this calculation,
are limited in respect of any one issuer to an amount not
greater in value than 5% of the value of the fund's total assets
and to not more than 10% of the outstanding voting securities of
such issuer. (All of the Trust's funds taken as a group also
must satisfy this 10% test.)
17. A fund may not concentrate the investments of the fund in a
single industry nor invest more than 25% of the current value of
its total assets in a single industry.
18. A fund may not sell call or put options, or purchase call or put
options, except that (a) the Index Plus Fund may (i) sell
covered call options with respect to all of its portfolio
securities or with respect to securities indexes, (ii) purchase
exchange-traded put and call options, provided that after any
such purchase not more than 5% of the Fund's net assets would be
invested in premiums on the purchase of put and call options or
combinations thereof, (iii) sell covered put options, provided
that after any such sale the Index Plus Fund would not have more
than 50% of its total assets (taken at current value) subject to
being invested on the exercise of put options, and (iv) enter
into closing purchase transactions with respect to such options,
and (b) the Mid Cap Index Fund and the Small Cap Index Fund each
may purchase exchange-traded puts and calls, provided that after
any such purchase not more than 5% of the Fund's assets would be
invested in premiums on the purchase of such options.
19. A fund may not invest more than 5% of the fund's total assets in
repurchase agreements which have a maturity longer than seven
days.
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20. A fund may not buy or sell commodities, commodities futures
contracts or commodities options contracts.
The Trust has no fundamental policy with respect to the issuance of
senior securities by any fund; however, the Investment Company Act of 1940
prohibits the Trust's issuance of any such securities.
In addition to these fundamental policies, each fund may not invest
more than 15% of the fund's net assets in "illiquid assets." Further, the Trust
has specifically undertaken, as a condition of state registration, to limit the
investment in warrants by any fund to no more than 5% of such fund's net assets,
and to further limit to 2% of any fund's net assets any investment by such fund
in warrants which are not listed on the New York or American Stock Exchanges.
Similarly, the Trust has undertaken to limit the short sales discussed in
paragraph 4 above to the lesser of 2% of the value of securities of any one
issuer in which any fund is short, or 2% of the securities of any class of any
issuer.
In order to comply with the securities laws and regulations of the
State of Texas, the Trust has also agreed that the following restrictions will
be applicable to each fund that registers its securities in the State of Texas.
(1) The fund will not invest in any oil, gas or other mineral. (2) The fund will
not invest in real estate limited partnerships. (3) The fund will not invest
more than 15% of its net assets in "illiquid" securities.
Although the practices described in paragraphs 4, 5 and 6 above could
involve more than 5% of a fund's assets, none of those practices has been
employed by any fund (or the Index Plus Fund's predecessor, Gateway Option
Income Fund, Inc.) since January 1, 1983. The Adviser has no current intention
of causing any fund to employ any such practice in the coming year.
PERFORMANCE AND RISK INFORMATION
PERFORMANCE INFORMATION
The funds may quote performance in various ways. All performance
information supplied by the funds is based upon historical results and is not
intended to indicate future performance. Total returns and other performance
information may be shown numerically or in a table, graph or similar
illustration. A fund's share prices and total returns fluctuate in response to
market conditions, interest rates and other factors.
TOTAL RETURN CALCULATIONS
Total returns reflect all aspects of a fund's return, including the
effect of reinvesting dividends and capital gains distributions, and any change
in a fund's net asset value per share (NAV) over the period.
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<PAGE> 48
Average annual total returns are calculated by determining the average
annual compounded rates of return over one-, five- and ten-year periods that
would equate an initial hypothetical investment to the ending redeemable value
according to the following formula.
P (1 + T)n = ERV where T equals: Average annual total return
n equals: Number of years and portion of a year
ERV equals: Ending redeemable value (of an initial
hypothetical $1,000 investment) at the end
of the period
P equals: $1,000 (the hypothetical initial
investment)
If a fund has been in existence for less than one, five or ten years,
the time period since the date it commenced operations will be substituted for
the periods stated.
As a hypothetical example, a cumulative return of 100% growth on a
compounded basis in ten years would produce an average annual total return of
7.18%, which is the annual rate that would equal 100% growth on a compounded
basis in ten years. While average annual total returns are convenient means of
comparing investment alternatives, shareholders should realize that a fund's
performance is not constant over time, but changes from year to year, and that
average annual total returns represent averaged figures as opposed to the actual
year-to-year performance of the fund.
Average annual total return is calculated as required by applicable
regulations promulgated by the Securities and Exchange Commission. In addition
to average annual total returns, a fund may quote year-by-year total returns and
cumulative total returns reflecting the simple change in value of any investment
over a stated period. Average annual, year-by-year and cumulative total returns
may be quoted as a percentage or as a dollar amount.
HISTORICAL RESULTS
The following chart shows each fund's average annual and cumulative
total returns for the period ended December 31, 1994:
<TABLE>
<CAPTION>
Average Annual Total Return One Year Five Year Ten Years Life of Fund
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Index Plus Fund 5.57% 9.15% 10.57% 10.28%
Mid Cap Index Fund (5.12) N/A N/A 0.19
Small Cap Index Fund (5.99) N/A N/A 0.07
</TABLE>
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<PAGE> 49
<TABLE>
<CAPTION>
Cumulative Total Return One Year Five Year Ten Years Life of Fund
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Index Plus Fund 5.57% 54.92% 173.07% 431.38%
Mid Cap Index Fund (5.12) N/A N/A 0.49
Small Cap Index Fund (5.99) N/A N/A 0.12
</TABLE>
The table below shows the redeemable value on December 31, 1994 for an
initial investment of $10,000 in the fund that was made at the beginning of the
one-, five-, and ten-year periods (or at the commencement of the fund's
operations). The table assumes all dividends and distributions have been
reinvested in additional fund shares.
<TABLE>
<CAPTION>
One Year Five Years Ten Years Life of Fund
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Index Plus Fund $10,557 $15,492 $27,307 $53,138
Mid Cap Index Fund $ 9,488 N/A N/A $10,049
Small Cap Index Fund $ 9,401 N/A N/A $10,012
</TABLE>
RISK INFORMATION
In evaluating the performance of any investment, including an
investment in a Gateway Fund, it is important to understand the risks involved
in the investment. Information regarding the performance of an investment, while
valuable in itself, is more meaningful when it is related to the level of risk
associated with that investment. Thus, two different mutual funds that produce
similar average annual total returns may present markedly different investment
opportunities if the risk of loss associated with one mutual fund is greater
than that of the other mutual fund.
For example, an investment in a mutual fund that invests in stocks
generally will present greater potential for variation in the share price of the
mutual fund, and hence a greater risk of gain or loss, than an investment in a
mutual fund that invests in U. S. government securities. Because the potential
for greater gain typically carries with it a greater degree of risk, the
advisability of an investment in a particular mutual fund for a given
shareholder will depend not only on historical performance of the fund but also
on the potential for gain and loss associated with that mutual fund.
The Gateway Trust offers four different funds that produce different
total returns and present different risk potentials. The difference in risk
potential can be demonstrated by various statistical concepts. The following
statistical concepts can be used to measure some of the risks associated with an
investment in each fund.
COMPARATIVE INDEXES
The performance and risk of the Index Plus Fund, the Mid Cap Index
Fund, and the Small Cap Index Fund is compared to the performance and risk of
the S&P 500 Index and the Lehman
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Government/Corporate Bond Index. These comparative indexes are used because they
are the standard benchmarks of the stock market and bond market respectively. A
fund's performance and risk may also be compared to other appropriate indexes.
STANDARD DEVIATION
Standard deviation measures the volatility of the total return of a
fund. Standard deviation is one method of comparing the total return of a fund
to the average monthly total return of the fund. In general, a fund that has a
greater standard deviation is a fund that has displayed a greater tendency to
vary from its own average monthly total return. Standard deviation can also be
used to compare the total return of a fund to the total return of an index or
another mutual fund. By comparing the magnitude of the standard deviation of
each investment, an analyst is able to determine the relative volatility of each
investment.
For example, as of December 31, 1994, the annual standard deviation for
the Index Plus Fund over the past three years was 4.52% while the standard
deviation for the S&P 500 Index was 9.95%. Thus, the S&P 500 Index was almost
twice as volatile as the Index Plus Fund. An investment with an expected return
of 10% and a standard deviation of 15% would be expected to earn a total return
ranging from -5% to +25% about 68% of the time, a total return ranging from -20%
to +40% about 95% of the time and a total return ranging from -35% to +55% about
97% of the time.
BETA
Beta analyzes the market risk of a fund by showing how responsive the
fund is to the market as defined by an index. Beta is a comparative measure of a
fund's volatility in relation to an appropriate index. Generally, higher betas
represent riskier investments. By definition, the beta of the market is 1.00.
Thus, a fund with a beta higher than 1.00 is expected to perform better than the
market in up markets and worse than the market in down markets.
For example, the beta of the Index Plus Fund was 0.38 at December 31,
1994. The Index Plus Fund would be expected to perform approximately half as
well as the market (as defined by S&P 500 Index) in up markets and half as
poorly as the market in down markets. Beta is the slope of the "least square
line" which compares the fund with an index.
RANKINGS AND COMPARATIVE PERFORMANCE INFORMATION
Each fund may compare its performance to that of other mutual funds or
categories of mutual funds as reported by independent services, such as
Morningstar, Inc., Lipper Analytical Services, Inc. and Value Line Mutual Fund
Survey, or by other financial publications with circulations of 10,000 readers
or more. Performance comparisons may be expressed as ratings (such as the
proprietary ratings published by Morningstar, Inc.) or rankings (such as the
rankings of funds in various categories published by Lipper Analytical Services,
Inc.). Performance comparisons may also be expressed as designations (such as a
certain number of "stars") or descriptions (such as "best fund") assigned by
such services or publications.
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SHAREHOLDER SERVICES
Gateway Investment Advisers, L.P. serves as the Trust's shareholder
servicing, transfer, dividend disbursing and financial servicing agent (the
"Servicing Agent"). In this capacity, it performs various shareholder services
on behalf of the Trust.
SHAREHOLDER ACCOUNT
Each fund maintains a shareholder account for investors who purchase
its shares. The shareholder account facilitates regular purchases of fund shares
over a period of years and provides the option of receiving dividends and
distributions either in cash or in fund shares. There is no charge for the
automatic reinvestment of dividends and distributions.
The Servicing Agent maintains a record of purchases, redemptions, and
share balances for each shareholder. Shortly after each purchase, the Servicing
Agent will mail a confirmation to the shareholder showing the shares purchased,
the exact price paid for the shares and the total number of shares owned. Share
certificates will not be issued.
Upon opening an account, a shareholder may elect any of the following
options: (1) reinvestment at net asset value of all distributions or (2) payment
in cash of all distributions. If no election is made, all distributions will be
reinvested at net asset value. An election may be changed by a letter or
telephone call to the Servicing Agent. No annual maintenance fees are charged by
the Trust on any shareholder account. The Trust reserves the right to charge
annual fees in the future. Shareholders will be notified of any change in the
annual fee arrangement.
AUTOMATIC INVESTMENT PLAN
For established accounts, shares of any of the funds may be purchased
on a monthly or quarterly basis in amounts of $100 or more per purchase.
Shareholder Services can arrange to have such money transferred automatically
from a shareholder's bank account to the Trust for purchase of shares. A
shareholder can make arrangements to use the Automatic Investment Plan (or
discontinue use of the Plan) by contacting Shareholder Services at (800)
354-6339.
SYSTEMATIC WITHDRAWAL PLAN
If the value of a shareholder's account is at least $5,000, the
shareholder can request withdrawals on either a monthly or a quarterly basis in
the minimum amount of $100. The Trust makes no recommendation as to the minimum
amount that ought to be periodically withdrawn by a shareholder. A sufficient
number of shares in the shareholder's account will be sold periodically
(normally one business day prior to each withdrawal payment date) to meet the
requested withdrawal payments.
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If a shareholder establishes an account in the Systematic Withdrawal
Plan, all dividends and distributions on shares held in the account will be
reinvested in additional shares at net asset value. Since the withdrawal
payments represent the proceeds from sales of the fund shares, there will be a
reduction, and there could even be an eventual depletion, of the amount invested
in the funds to the extent that withdrawal payments exceed the dividends and
distributions paid and reinvested in shares. Withdrawals under the Systematic
Withdrawal Plan should not, therefore, be considered a yield on investment. A
shareholder can make arrangements to use the Systematic Withdrawal Plan (or
discontinue use of the Plan) by contacting Shareholder Services at (800)
354-6339.
IRAs
Investors may purchase shares of any Gateway fund through Individual
Retirement Accounts ("IRAs") which are permitted to invest in shares of a mutual
fund. The Trust itself sponsors a form of IRA (the "Gateway IRA") which can be
adopted by an investor and which is specifically designed to permit the
shareholder to invest in shares of the Gateway funds selected by the
shareholder. Alternatively, investors may use the services of the Adviser to
allocate assets of the Gateway IRA among investments in shares of the Gateway
funds and certain other investments. The custodian of the Gateway IRAs is Star
Bank. Investors can obtain forms to establish Gateway IRAs by calling
Shareholder Services at (800) 354-6339.
An IRA is a special program with certain tax benefits that generally
permits an investor to establish and contribute to his or her own retirement
plan. As is briefly discussed below, an investor who has compensation for a
taxable year may make contributions within certain limits to his or her own IRA
(and, in limited situations, an IRA for his or her spouse). Certain of the
investor's contributions to the IRA may be deductible from income in determining
his or her Federal income tax for the taxable year of the contributions and not
taxed until distributed from the IRA. Also, certain amounts received from
another IRA may be able to be rolled over or transferred to an IRA and thereby
avoid Federal income tax on the amounts rolled over or transferred until
received from the new IRA. In addition, certain amounts distributed from a
tax-qualified employer plan may be able to be rolled over directly to an IRA and
thereby avoid income tax withholding on the amounts rolled over. Further, all
earnings generated in the IRA are not taxed until distributed from the IRA.
To explain in more detail, in general, any investor who has
compensation in a taxable year is eligible: (1) to establish and/or make
contributions to an IRA for his or her own benefit for such taxable year (except
for the taxable year in which he or she attains the age of 70-1/2 or any later
taxable year); and (2) to establish and/or make contributions to an IRA for his
or her spouse, provided the spouse either has (or elects to be treated as
having) no compensation for the taxable year and provided the spouse has not
attained the age of 70-1/2 by the close of such taxable year. Such an investor
may contribute for the applicable taxable year up to the lesser of $2,000
($2,250 for spousal IRAs for both the investor and his or her non-earning
spouse, if applicable) or 100% of his or her compensation for the taxable year.
If both the investor and his or her spouse have compensation, each may
contribute up to such limits to separate IRAs.
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The amount contributed to an IRA under the above rules is deductible
from income of the investor in determining Federal income tax for the applicable
taxable year; except that if the investor (or his or her spouse) is an active
participant in an employer-maintained retirement or profit sharing or similar
type of plan for such taxable year, the ability to deduct the contribution is
phased out if the adjusted gross income, as modified in certain respects for
this purpose ("AGI"), of the investor is above a certain amount. Specifically,
for such an investor filing a joint return with his or her spouse, the deduction
is phased out for AGI between $40,000 and $50,000 (and hence is not available at
all when the AGI on the joint return is above $50,000). When such an investor is
not married, the deduction is phased out for AGI between $25,000 and $35,000
(and hence is not available when the AGI is above $35,000). For an investor who
is married but files a separate tax return, the deduction is phased out for AGI
between $0 and $10,000 (and hence is not available when the AGI is above
$10,000). In determining whether the investor's spouse's active participant
status is taken into consideration and the applicable AGI limits, an investor
and his or her spouse who file separate returns for the applicable tax year and
live apart at all times during such tax year will not be treated as married for
such year.
Additional contributions can be made to an investor's IRA if
contributed by the investor's employer pursuant to a simplified employee pension
plan (an "SEP") maintained by the employer. Currently, the maximum amount able
to be contributed to an investor's IRA through his or her employer's SEP (and
assuming the employer maintains and has maintained no other qualified plans for
the investor) is generally 15% of the investor's compensation from that employer
(determined without regard to the SEP contributions) or $22,500, whichever is
less. Contributions to an investor's IRA under an SEP program generally, if
within the above limits, are not included in the investor's income for Federal
income tax purposes.
Further, an investor may at times be able to roll over amounts he or
she receives from another IRA, or from a tax-qualified profit sharing, stock
bonus, pension, or annuity plan of an employer, to a Gateway IRA and be able by
such method to defer the paying of taxes on the part of the distribution rolled
over until such amounts are paid from the new IRA, provided certain conditions
are met.
Distributions to a shareholder from one IRA can be rolled over to a
Gateway IRA as a sixty-day rollover. To qualify for sixty-day rollover
treatment, the shareholder must complete the rollover within sixty days of
receiving the distribution. A sixty-day rollover distribution from an IRA may be
made only once in any one-year period. The automatic 20% withholding for Federal
income tax does not apply to distribution from an IRA, and the shareholder can
elect no withholding from that distribution.
A shareholder may also make a direct transfer of assets from one IRA to
a Gateway IRA by directing the existing IRA custodian or trustee to transfer
directly to the Gateway IRA the amount held in that prior IRA, without directly
receiving those funds or being taxed on the transfer. There is no minimum
holding period for a direct transfer of IRA assets from one custodian or trustee
to another. The Adviser has forms, available upon request, that a shareholder
can use to make direct IRA transfers.
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A shareholder generally may roll over into a Gateway IRA any taxable
part of a distribution from a qualified employer plan. Distributions from an
employer's tax-qualified plan can be rolled over to a Gateway IRA either as a
direct rollover or as a sixty-day rollover.
A shareholder can make a direct rollover by instructing the employer's
plan to wire the distribution to Star Bank as custodian for the Gateway IRA. The
distribution should be wired to:
The Gateway Trust c/o Star Bank, N.A.
ABA #042-0000-13
Cincinnati, Ohio
Name (insert shareholder name)
Gateway Account No. (insert shareholder account number)
Name of Gateway fund(s) in which you wish to invest
A shareholder can also make a direct rollover by instructing the
employer's plan to prepare a check for the amount to be rolled over payable to
"Star Bank, N.A., as Custodian of Individual Retirement Account of (insert
shareholder name)," and delivering that check to Gateway. The check can be
delivered in person or mailed to:
The Gateway Trust
Shareholder Services
P. O. Box 5211
Cincinnati, Ohio 45201-5211
A shareholder can make a sixty-day rollover of a distribution from a
qualified employer plan by instructing the employer's plan to prepare a check
payable to the shareholder and by endorsing or cashing the check and depositing
some or all of the proceeds in his or her Gateway IRA. The deposit must be
delivered in person or mailed to The Gateway Trust at the above address within
sixty days of receiving the distribution. The employer's plan must withhold 20%
of the taxable amount for Federal income tax if a shareholder chooses a
sixty-day rollover for the distribution. The shareholder can still roll over up
to 100% of the eligible rollover distribution, including an amount equal to the
20% that was withheld. If the shareholder chooses to roll over 100%, the
shareholder must find other money within the sixty day period to replace the 20%
withheld. If the shareholder rolls over only the 80% that he or she received,
the shareholder will be taxed on the 20% that was withheld.
Some portions of distributions from other IRAs or from tax-qualified
profit sharing, stock bonus, pension, or annuity plans are not eligible for
regular or direct rollovers. For instance, distributions of nontaxable after-tax
employee contributions or required minimum payments made after an individual
reaches age 70-1/2 cannot be rolled over.
In general, amounts earned in an IRA from any contributions (whether
such contributions are deductible, nondeductible, or rollover contributions) are
not subject to Federal income tax until such amounts are distributed to the
owner of the IRA (or, in the case of the owner's death, his or her beneficiary
under the IRA), at which time they are taxed as ordinary income. All
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<PAGE> 55
distributions from an IRA are taxable, except for the part of any distribution
deemed (under tax rules) a return of prior nondeductible contributions to the
IRA. Generally, distributions cannot begin without penalty until the owner
reaches age 59-1/2 or is disabled, and must both begin by April 1 of the year
following the year he or she attains age 70-1/2 and be paid in accordance with
tax rules over the life of the IRA owner or the joint lives of the owner and his
or her IRA beneficiary (or the life expectancy of the owner or the joint life
and last survivor expectancy of the owner and the IRA beneficiary). In addition,
certain excise (or penalty) taxes apply under Federal law if contributions
exceed applicable limits, if distributions are not made when required, or if the
amount distributed in any taxable year exceeds certain high levels. To make a
withdrawal from a Gateway IRA, a shareholder should contact Shareholder Services
at (800) 354-6339.
The rules for contributing to, investing under, and distributing from
IRAs are complex, and any investor should consult with his or her own tax
advisor if he or she has any questions with respect to IRAs and to determine if
there have been any recent changes to the rules. At the time an IRA is
established, the custodian or trustee of the IRA is required by law to provide a
disclosure statement to the individual setting forth important information
concerning IRAs.
Further information concerning IRAs can be obtained from any district
office of the Internal Revenue Service. In particular, Publication 590 of the
Internal Revenue Service provides general information as to IRAs.
No annual maintenance fees are charged by the Trust on any IRA,
SEP-IRA, retirement, pension or profit-sharing plan, including a 401(k) plan.
The Trust reserves the right to charge annual fees in the future. Shareholders
will be notified of any change in the annual fee arrangement.
QUALIFIED PENSION AND PROFIT SHARING PLANS
Employers with existing retirement, pension or profit sharing plans may
purchase shares of any fund by completing the New Account Application Form which
accompanies the Prospectus. The possible use, at no additional charge, of the
Systematic Withdrawal Plan provides an optional method for employees to receive
retirement benefits on a regular basis.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Basic information concerning the purchase and redemption of shares is
set forth under the captions "How To Buy Shares" and "How To Sell Shares" in the
Combined Prospectus. Shares of all funds are purchased and redeemed at their net
asset value as next determined following receipt of the purchase order or
redemption notice. Redemptions under the Systematic Withdrawal Program and
installment distributions from IRAs are effected at the net asset value next
determined after the date designated for the redemption or distribution.
Information as to the method of calculating the net asset value of shares of any
fund is included in the Combined Prospectus under the caption "How Fund Shares
Are Priced."
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Certificates for shares of any fund will not be issued.
The minimum initial investment is $1,000 and the minimum additional
investment is $100, subject to certain exceptions such as investments by the
Adviser's employees and by participants in SEP programs. The Trust reserves the
right to reject any purchase order of any fund.
There is no minimum or maximum applicable to redemption of shares of
any fund. The Trust, however, reserves the right to automatically redeem a
shareholder's account(s) under certain circumstances. The shareholder will
receive written notice prior to the redemption of the account(s). Generally the
Trust will send the shareholder a letter 60 days prior to redeeming the
shareholder's account(s).
The Trust will automatically redeem a shareholder's account(s) in any
fund when the aggregate value of the shareholder's account(s) (taken at current
value) falls below $800. The shareholder may prevent such redemption by
increasing the value of the account(s) to $1,000 or more within the 60-day
period. The Trust will not automatically redeem a shareholder's account(s) if
market action caused the aggregate value of the account(s) to fall below $800 or
if shares of the funds are not available for purchase at the time the aggregate
value of the account(s) falls below $800.
The Trust also will automatically redeem a shareholder's account if the
shareholder does not provide a valid U. S. social security number or taxpayer
identification number or other requested documents such as corporate
resolutions. The shareholder may prevent such redemption by providing the
requested information within the 60-day period.
The Trust may institute additional mandatory redemption policies as
approved by the Board of Trustees.
The Trust reserves the right to terminate temporarily or permanently
the exchange privilege for any shareholder who makes an excessive number of
exchanges between funds. The shareholder will receive written notice that the
Trust intends to limit the shareholder's use of the exchange privilege.
Generally the Trust limits a shareholder to twelve exchange transactions per
calendar year. Accounts under common ownership or control, including accounts
with the same taxpayer identification number, normally will be counted as one
account for purposes of the exchange limit.
The Trust also reserves the right to terminate or modify the exchange
privilege or to refuse an exchange if the exchange would adversely affect a
fund.
Signature guarantees are required for all redemptions involving more
than $10,000 (on the date of receipt by the Servicing Agent of all necessary
documents) and for any redemptions, regardless of the amount involved, when the
proceeds are to be paid to someone other than the registered owner(s). These
requirements are not applicable to redemptions from Gateway-
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<PAGE> 57
sponsored IRAs. The signature guarantee requirement may be waived by the Trust
in certain instances. The purpose of signature guarantees is to prevent
fraudulent redemptions which could result in losses to the Trust, the Servicing
Agent or shareholders. A signature guarantee will be accepted from banks,
brokers, dealers, municipal securities dealers or brokers, government securities
dealers or brokers, credit unions (if authorized by state law), national
securities exchanges, registered securities associations, clearing agencies, and
savings associations. Notary publics are unacceptable guarantors. The signature
guarantees must appear either (1) on the written request for redemption, (2) on
a stock power which should specify the total number of shares to be redeemed, or
(3) on all stock certificates tendered for redemption.
The right of redemption may be suspended or the date of payment
postponed (1) for any periods during which the New York Stock Exchange is closed
(other than for customary weekend and holiday closings), (2) when trading in any
of the markets which a fund normally utilizes is restricted as determined by the
Securities and Exchange Commission (the "Commission"), (3) if any emergency
exists as defined by the Commission so that disposal of investments or
determination of a fund's net asset value is not reasonably practicable, or (4)
for such other periods as the Commission by order may permit for protection of
the Trust's shareholders.
Although payment for redeemed shares generally will be made in cash,
under abnormal circumstances the Board of Trustees of the Trust may determine to
make payment in securities owned by the fund whose shares are being redeemed. In
such event, the securities will be selected in such manner as the Board of
Trustees deems fair and equitable, in which case brokerage and other costs may
be incurred by such redeeming shareholders in the sale or disposition of their
securities. To date, all redemptions have been made in cash.
The Trust reserves the right to modify or terminate any purchase,
redemption or other shareholder service procedure upon notice to shareholders.
Purchases and redemptions generally may be effected only on days when
the options exchanges are open for trading. These exchanges are closed on
Saturdays and Sundays and the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and
Christmas Day.
INVESTMENT ADVISORY AND OTHER SERVICES
GATEWAY INVESTMENT ADVISERS, L.P.
Effective December 15, 1995, Gateway Investment Advisers, L.P. (the
"Adviser") became the successor to Gateway Investment Advisers, Inc. which was
organized in June 1977. Gateway Investment Advisers, Inc. is the general partner
of the Adviser with a 76% ownership interest, while Alex. Brown Investments
Incorporation ("ABI") is the sole limited partner with a 24% ownership interest.
ABI is an affiliate of Alex. Brown & Sons Incorporated, a nationally known
investment management firm and registered broker/dealer located in Baltimore,
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Maryland. As of December 15, 1995, Walter G. Sall, Chairman and a Trustee of the
Trust, and J. Patrick Rogers, a co-portfolio manager of the funds of the Trust,
together owned of record and beneficially 99.85% of the outstanding shares of
Gateway Investment Advisers, Inc. and thereby control the Adviser. Mr. Sall is
Chairman and a director of Gateway Investment Advisers, Inc. and Mr. Rogers is
its President and a Director.
INVESTMENT ADVISORY CONTRACTS
The Trust has retained the Adviser under investment advisory contracts
to act as investment manager and in such capacity supervise the investments of
the Gateway funds, subject to the policies and control of the Trust's Board of
Trustees. Contracts for the Index Plus Fund, Mid Cap Index Fund and Small Cap
Index Fund became effective December 15, 1995.
Pursuant to the Adviser Contracts, the Adviser, at its sole expense,
provides each fund with (1) investment recommendations regarding such fund's
investments, (2) office space, telephones, and other office equipment, and (3)
clerical and secretarial staff and the services, without additional
compensation, of all officers of the Trust. In addition, the Adviser has agreed
to bear (1) advertising and other marketing expenses in connection with the sale
of the shares of the funds, (2) expenses of printing and distributing
prospectuses and related documents to prospective stockholders, and (3)
association membership dues (other than for the Investment Company Institute).
The Adviser Contracts further provide that under certain circumstances the
Adviser may cause each fund to pay brokerage commissions in order to enable the
Adviser to obtain brokerage and research services for its use in advising such
fund and the Adviser's other clients, provided that the amount of commission is
determined by the Adviser, in good faith and in the best interests of the fund,
to be reasonable in relation to the value of the brokerage and research services
provided.
The Adviser Contracts provide that all expenses not specifically
assumed by the Adviser which may be incurred in the operation of the Trust and
the offering of its shares will be borne by the Trust. Such expenses will be
allocated between the funds by direction of the Board of Trustees, most
frequently on the basis of expenses incurred by each fund, but where that is not
practicable on such basis as the Trustees determine to be appropriate. Expenses
to be borne by the Trust include:
- fees and expenses of Trustees not employed by the Adviser.
- expenses of printing and distributing prospectuses to current
shareholders of the Trust.
- expenses pertaining to registering or qualifying the Trust or its
shares under various federal and state laws and maintaining and
updating such registrations and qualifications.
- interest expense, taxes, fees and commissions (including brokerage
commissions).
- expenses related to repurchases and redemptions of shares.
- charges and expenses of custodians, transfer agents, dividend
disbursing agents and other service providers.
- expenses of valuing shares of each fund.
- printing and mailing costs other than those expressly assumed by the
Adviser.
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- auditing, accounting and legal expenses.
- expenses incurred in connection with the preparation of reports to
shareholders and governmental agencies.
- expenses of shareholder meetings and proxy solicitations.
- insurance expenses.
- all "extraordinary expenses" which may arise, including all losses and
liabilities incurred in connection with litigation proceedings and
claims, and the legal obligations of the Trust to indemnify its
officers, trustees and agents with respect thereto.
A majority of the Board of Trustees of the Trust and a majority of the Trustees
who are not "interested persons" (as defined in the Investment Company Act of
1940) of any party to the Adviser Contracts, voting separately, shall determine
which expenses shall be characterized as "extraordinary expenses."
In return for the services and facilities furnished by the Adviser, the
Index Plus Fund, the Mid Cap Index Fund and the Small Cap Index Fund each pays
the Adviser an advisory fee computed at an annual rate of 0.90% of the first $50
million of the average daily net asset value of such fund, 0.70% of such asset
value in excess of $50 million and less than $100 million, and 0.60% of such
asset value in excess of $100 million. The rate of such advisory fee is higher
than that paid by many other funds for advisory services.
If total expenses of any fund for any fiscal year (including the
Adviser's compensation, but exclusive of taxes, interest, brokerage commissions
and any "extraordinary expenses" determined as described above) exceed the
specified percentage of such fund's average daily net asset value for such year,
the Adviser Contracts require the Adviser to bear all such excess expenses up to
the amount of the advisory fees. The applicable expense limitation percentage
for each fund are: 1.5% of the Index Plus Fund's average daily net asset value,
1.5% of the Mid Cap Index Fund's average daily net asset value, and 2.0% of the
Small Cap Index Fund's average daily net asset value. Each month the investment
advisory fee is determined and each fund's expenses are projected. If such
fund's projected expenses are in excess of the above-stated expense limitations,
the investment advisory fee paid to the Adviser will be reduced by the amount of
the excess expenses, subject to an annual adjustment; provided, however, that
the aggregate annual reduction from the Adviser to each fund shall not exceed
the aggregate advisory fee paid by such fund to the Adviser for such year.
The following table shows the advisory fees earned by the Adviser and
the amount of the fees waived by the Adviser in the years ended December 31,
1994, 1993 and 1992. The 1992 information shown for the Mid Cap Index Fund is
for the three-month period ended December 31, 1992. The 1993 information shown
for the Small Cap Index Fund is for the period from June 16 to December 31,
1993.
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<TABLE>
<CAPTION>
Fee and Waiver Index Plus Fund Mid Cap Index Fund Small Cap Index Fund
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
1994 Fee Earned $1,273,842 $84,778 $114,449
1994 Fee Waived None $81,284 $ 15,135
------- --------
1994 Fee Paid $1,273,842 $ 3,494 $ 99,314
1993 Fee Earned $1,506,566 $95,395 $ 47,791
1993 Fee Waived None $66,914 $ 16,373
------- --------
1993 Fee Paid $1,506,566 $28,481 $ 31,418
1992 Fee Earned $1,053,232 $22,162 N/A
1992 Fee Waived None $18,934 N/A
-------
1992 Fee Paid $1,053,232 $ 3,228 N/A
</TABLE>
Prior to January 1, 1993, the Index Plus Fund and the Mid Cap Index
Fund each were obligated to pay the Adviser $10,000 each year to cover the
expenses incurred by the Adviser in providing a Treasurer for the Trust. The
$10,000 annual fee paid in 1992 and 1991 by the Index Plus Fund and the $2,500
fee paid in the three-month period ended December 31, 1992 by the Mid Cap Index
Fund are not included in the table. The current Adviser Contracts do not contain
this provision; however, the Adviser provides financial services to each fund
pursuant to the Shareholder Services Agreement between the Trust and the
Adviser.
The Adviser Contracts further provide that the Adviser is not liable to
the Trust or any of its shareholders for any act or omission by the Adviser in
the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties or obligations thereunder. The Advisory Contracts
contemplate that the Adviser may act as an investment manager or adviser for
others.
The Adviser Contracts may be amended at any time by the mutual consent
of the parties thereto, provided that such consent on the part of the Trust
shall have been approved by the vote of a majority of the Trust's Board of
Trustees, including the vote cast in person by a majority of the Trustees who
are not "interested persons" (as defined in the Investment Company Act of 1940)
of any party to the Advisor Contract, and by vote of the shareholders of the
applicable fund.
The Adviser Contracts may be terminated, upon 60-days' written notice
(which notice may be waived), at any time without penalty, (i) by the Board of
Trustees of the Trust, (ii) by the vote of a majority of the outstanding voting
securities of the applicable fund or (iii) by the Adviser. Each Adviser Contract
terminates automatically in the event of its assignment (as that term is defined
in the Investment Company Act of 1940) by the Adviser.
The Adviser Contracts continue in effect until the next meeting of
shareholders of the applicable fund, and thereafter until each successive such
meeting, provided the continuance for each renewal year is specifically approved
in advance by the vote of a majority of the outstanding voting securities of the
applicable fund or by a vote of a majority of the Trust's
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Board of Trustees, and in either event by the vote cast in person of a majority
of the Trustees who are not "interested persons" (as defined in the Investment
Company Act of 1940) of any party to such Adviser Contracts.
CUSTODIAN
Star Bank, 425 Walnut Street, Cincinnati, Ohio 45202, acts as custodian
of the Trust's assets (the "Custodian"). The Custodian has no part in
determining the investment policies of any fund or which securities are to be
purchased or sold by any fund.
SHAREHOLDER SERVICING, TRANSFER, DIVIDEND DISBURSING AND FINANCIAL SERVICING
AGENT
The Adviser is the Trust's Shareholder Servicing, Transfer, Dividend
Disbursing and Financial Servicing Agent (the "Servicing Agent"). The Adviser's
mailing address for its activities as Servicing Agent is The Gateway Trust, 400
TechneCenter Drive, Suite 220, Milford, Ohio 45150. As Transfer Agent for the
Trust, the Servicing Agent's general duties include transferring shares,
processing applications for new accounts and depositing the payments for the
purchase of fund shares with the Custodian, and notifying the Trust and
Custodian of such deposits. The Servicing Agent opens and maintains an account
for each shareholder as set forth in the subscription application, maintains
records of each shareholder account, and sends confirmation of shares purchased
to each shareholder. The Servicing Agent also receives and processes requests by
shareholders for redemption of shares. If the shareholder request complies with
the redemption standards of the Trust, the Servicing Agent will direct the
Custodian to pay the appropriate redemption price. If the redemption request
does not comply with such standards, the Servicing Agent will promptly notify
the shareholder of the reasons for rejecting the redemption request.
As the Dividend Disbursing Agent for the Trust, the Servicing Agent,
upon notification of the declaration of a dividend or distribution, will
determine the total number of shares issued and outstanding as of the record
date for the dividend or distribution and the amount of cash required to satisfy
such dividend or distribution. The Servicing Agent will prepare and mail to
shareholders dividend checks in the amounts to which they are entitled. In the
case of shareholders participating in the dividend reinvestment plan, the
Servicing Agent will make appropriate credits to their bookshare accounts.
Shareholders will be notified by the Servicing Agent of any dividends or
distributions to which they are entitled, including any amount of additional
shares purchased with their dividends. In addition, the Servicing Agent will
prepare and file with the Internal Revenue Service and with any state, as
directed by the Trust, returns for reporting dividends and distributions paid by
such fund.
The Servicing Agent, as the Shareholder Servicing Agent, will open and
maintain any plan or program for shareholders in accordance with the terms of
such plans or programs (see "SHAREHOLDER SERVICES" herein). With regard to the
systematic withdrawal plans, the Servicing Agent will process such systematic
withdrawal plan orders as are duly executed by shareholders and will direct
appropriate payment to be made by the Custodian to the shareholder.
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<PAGE> 62
In addition, the Servicing Agent will process such accumulation plans, group
programs and other plans or programs for investing shares as provided in the
Trust's current prospectuses
Each fund pays the Servicing Agent a monthly minimum fee of $2,500 for
its services. Each fund also reimburses the Servicing Agent for printing,
mailing, compliance, and processing expenses associated with providing its
services. The portion of the reimbursement related to processing expenses cannot
exceed 0.2% of the fund's average net assets. In addition, each fund pays the
Adviser a monthly fee of $4,000 for the financial services it provides as the
Servicing Agent. For the year ended December 31, 1994, the Adviser earned
$685,288 in its capacity as Servicing Agent.
During 1993 and 1992, the Adviser acted as Servicing Agent for the
Trust pursuant to various shareholder servicing agreements. For the years ended
December 31, 1993 and 1992, the Adviser earned $638,558, and $321,055
respectively in its capacity as Servicing Agent for the Trust. The basis for
remuneration of the Adviser for 1993 and 1992 was (1) a fee ranging from $1.50
to $1.60 per month for each shareholder account existing for such month (subject
to a $2,500 monthly minimum for each fund), (2) reimbursement of the Adviser for
certain out-of-pocket expenses it incurred in providing shareholder, transfer,
and dividend disbursing services, and (3) a monthly fee for accounting services.
BROKERAGE AND PORTFOLIO TURNOVER
BROKERAGE
Transactions on stock and option exchanges involve the payment of
negotiated brokerage commissions. In the case of securities traded in the
over-the-counter market, there is generally no stated commission but the price
usually includes an undisclosed commission or mark-up.
In effecting portfolio transactions for each fund the Adviser uses its
best efforts to obtain the most favorable price and execution available, except
to the extent that it may be permitted to pay higher brokerage commissions for
brokerage and research services as described below. In seeking the most
favorable price and execution, the Adviser, in each fund's best interests,
considers all relevant factors, including:
- price.
- the size of the transaction, the nature of the market for the security.
- the amount of commission.
- the timing of the transaction taking into account market prices and
trends.
- the reputation, experience and financial stability of the broker-dealer
involved.
- the quality of service rendered by the broker-dealer in other
transactions.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to seeking best execution and such other
factors as the Trustees may
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<PAGE> 63
determine, the Adviser may consider sales of shares of a fund as a factor in the
selection of broker-dealers to execute securities transactions for such fund.
Closing option transactions are usually effected through the same broker-dealer
that executed the opening transaction.
The Adviser Contracts provide that, subject to such policies as the
Trustees may determine, the Adviser may cause a fund to pay a broker-dealer who
provides brokerage and research services to the Adviser an amount of commission
for effecting a securities transaction for such fund in excess of the amount of
commission which another broker-dealer would have charged for effecting that
transaction. As provided in Section 28(e) of the Securities Exchange Act of
1934, "brokerage and research services" include:
- - advice as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities.
- - furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and performance of
accounts.
- - effecting securities transactions and performing functions incidental
thereto (such as clearance and settlement).
- - services that provide lawful and appropriate assistance to the Adviser in
the performance of its investment decision-making responsibilities.
While the Adviser does not intend to limit the placement of orders to
any particular broker or dealer, the Adviser generally gives preference to those
brokers or dealers who are believed to give best execution at the most favorable
prices and who also provide research, statistical or other services to the
Adviser and/or the Trust. Commissions charged by brokers who provide these
services may be higher than commissions charged by those who do not provide
them. Higher commissions are paid only if the Adviser determines that they are
reasonable in relation to the value of the services provided, and it has
reported to the Board of Trustees of the Trust on a periodic basis to that
effect. The availability of such services was taken into account in establishing
the investment advisory fees. Specific research services furnished by brokers
through whom the Trust effects securities transactions may be used by the
Adviser or in servicing all of its accounts. Similarly, specific research
services furnished by brokers who execute transactions for other of the
Adviser's clients or clients may be used by the Adviser for the benefit of the
Trust.
At December 31, 1994, the Index Plus Fund and the Small Cap Index Fund
each held securities (valued as set forth below) of one of its "regular"
brokers. A "regular" broker, as defined by the Investment Company Act of 1940,
is one of the ten brokers that received the greatest dollar amount of brokerage
commmissions from a fund's portfolio transactions.
<TABLE>
<CAPTION>
Name of Fund Broker Value of Securities
------------------------------------------------------------------------
<S> <C> <C>
Index Plus Fund Merrill Lynch $793,650
Small Cap Index Fund Alex Brown $ 33,413
</TABLE>
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<PAGE> 64
The following table shows the brokerage commissions paid by the funds
in the years ended December 31, 1994, 1993 and 1992. The 1992 brokerage
commissions for Mid Cap Index Fund are for the three-month period ended December
31, 1992. The 1993 brokerage commissions for the Small Cap Index Fund are for
the period from June 15 to December 31, 1994.
<TABLE>
<CAPTION>
Name of Fund 1994 Commissions 1993 Commissions 1992 Commissions
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Index Plus Fund $76,077 $326,174 $395,498
Mid Cap Index Fund $ 9,121 $ 32,234 $ 12,789
Small Cap Index Fund $24,677 $ 26,797 N/A
</TABLE>
The increase in brokerage commissions paid by the Mid Cap Index Fund in 1993 was
attributable to the restructuring of the portfolio in December 1993. To
implement the restructuring, the Fund sold all of its portfolio securities and
then purchased the 400 stocks included in the S&P MidCap 400 Index.
PORTFOLIO TURNOVER
Portfolio turnover rate is the percentage computed by taking the lesser
of purchases or sales of portfolio securities for a year and dividing it by the
monthly average of the market values of such securities. An increase in a fund's
portfolio turnover rate generally results in an increase in the brokerage
commissions paid by the fund. The portfolio turnover rates for each fund for the
years ended December 31, 1994 and 1993 are set forth in the table below.
<TABLE>
<CAPTION>
Name of Fund 1994 Portfolio Turnover 1993 Portfolio Turnover
-----------------------------------------------------------------------
<S> <C> <C>
Index Plus Fund 4% 17%
Mid Cap Index Fund 8% 105%
Small Cap Index Fund 39% 3%
</TABLE>
The Adviser estimates that the portfolio turnover rate for the Small
Cap Index Fund will generally not exceed 50%. The portfolio turnover rate for
the Mid Cap Index Fund in 1993 resulted from the restructuring of the portfolio
in December, 1993. To implement the restructuring, the Fund sold all of its
portfolio securities and then purchased the 400 stocks included in the S&P
MidCap 400 Index. The Fund incurred additional brokerage expenses in connection
with the restructuring. The Adviser anticipates that the fund's portfolio
turnover rate will generally not exceed 50%.
Page 31
<PAGE> 65
ADDITIONAL TAX MATTERS
The tax discussion set forth below and in the Prospectuses is included
for general information only. Prospective investors should consult their own tax
advisers concerning the tax consequences of an investment in the Trust.
FEDERAL TAX MATTERS
Each of the funds is treated as a separate association taxable as a
corporation. The following information, therefore, applies to each fund
separately unless otherwise specifically stated.
Except as noted below, each fund has met, and each of the funds in the
future intends to meet, the requirements of the Internal Revenue Code,
applicable to regulated investment companies so as to qualify for the special
tax treatment afforded to such companies. Under Subchapter M of the Code, a
regulated investment company is not subject to federal income tax on the portion
of its net investment income and net realized capital gains which it distributes
currently to its stockholders, provided that certain distribution requirements
are met, including the requirement that at least 90% of the sum of its net
investment income and net short-term capital gains in any fiscal year is so
distributed. In addition to this distribution requirement, two of the principal
tests which each fund must meet in each fiscal year in order to qualify as a
regulated investment company are the "90% Test" and the "30% Test." The 90% Test
requires that at least 90% of a fund's gross income must be derived from
dividends, interest and gains from the sale or other disposition of securities,
including gains from options. The 30% Test that requires no more than 30% of a
fund's gross income be derived from the sale or other disposition of securities
held less than three months. The 30% Test limits each fund's ability to deal
with investments held, or options outstanding, less than three months. In 1987,
the Index Plus Fund failed to satisfy the 30% Test as a result of an unusual
volume of short-term gains realized by the fund following the stock market drop
in October 1987. As a consequence, the Fund failed to qualify under Subchapter M
and became subject to federal income tax and state franchise tax for 1987. The
Index Plus Fund has qualified under Subchapter M each year since 1987.
Gains realized from transactions on put and call options (other than
options on securities indexes) generally will be long term or short term,
depending on the nature of the option transaction and on the length of time the
option is owned by the fund.
The tax status of distributions made by each fund during the fiscal
year will be sent to shareholders shortly after the end of such year. Each
prospective investor is advised to consult his own tax adviser. Distributions of
net investment income are taxable as ordinary income subject to allowable
exclusions and deductions. Distributions of capital gains are taxable at either
ordinary or long-term capital gains rates, as appropriate, except that all such
gains are normally taxable as ordinary income to the extent they are offset by
capital-loss carryforward.
Long-term capital gains distributions (i.e., the excess of any net
long-term capital gains over net short-term capital losses), after utilization
of available capital-loss carryforwards, are
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<PAGE> 66
taxable as long-term capital gains whether received in cash or additional
shares, regardless of how long the shareholder has held his shares, and are not
eligible for the dividends received deduction for corporations. Distributions of
long-term capital gains which are offset by available loss carryforwards,
however, may be taxable as ordinary income.
Distributions on shares of any fund received shortly after their
purchase, although substantially in effect a return of capital, are subject to
federal income taxes.
STATE AND LOCAL TAX ASPECTS
The laws of the several states and local taxing authorities vary with
respect to taxation, and each prospective investor is advised to consult his own
tax adviser as to the status of his shares and distributions in respect of those
shares under state and local tax laws.
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and Officers of the Trust, together with information as to
their positions with the Trust and its predecessor, Gateway Option Income Fund,
Inc. (the "Company") and their principal occupations during at least the past
five years, are listed below.
*Walter Gene Sall, 400 TechneCenter Drive, Suite 220, Milford, Ohio,
45150; Chairman and Trustee of the Trust; Chairman of the Adviser; various
senior management positions and offices held with the Trust, the Company and the
Adviser since 1977. Age 50.
*Peter Whitney Thayer, 400 TechneCenter Drive, Suite 220, Milford,
Ohio, 45150; President and Trustee of the Trust; President of the Adviser;
various senior management positions and offices held with the Trust, the Company
and the Adviser since 1977. Age 46.
Stefen F. Brueckner, Community Mutual Insurance Company, 1351 William
Howard Taft Road, Cincinnati, Ohio, 45206; Trustee of the Trust Since October
1992; Director, President and Chief Operating Officer, Community Mutual
Insurance Company (health insurer) since 1991; various senior management
positions with Community Mutual Insurance between 1986 and 1991. Prior thereto,
various management positions with Community Life Insurance Company, Columbus,
Ohio. Director of CMIC Holding Company, Community National Assurance Company and
E&E Benefit Plans, Inc. Age 45.
Kenneth A. Drucker, Sequa Corp., 200 Park Avenue, New York, New York,
10166; Director of the Company from January 20, 1984 to May 1986; Trustee of the
Trust since April 1986; Vice President and Treasurer, Sequa Corporation (gas
turbine and industrial equipment) since November 1987. Prior thereto, Senior
Vice-President and Treasurer, JWT Group, Inc. (advertising, public update
relations and market research). Age 49.
Beverly S. Gordon, 1629 Starling Drive, Sarasota, Florida, 34231;
Trustee of the Trust since September 1988; arbitrator, National Association of
Securities Dealers, Inc., since January
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<PAGE> 67
1992; Vice President, Marketing and Communications, Coffee, Sugar and Cocoa
Exchange from January 1989 to December 1991; Executive Director, National
Institutional Options and Futures Society, March 1988 to December 1988; prior
thereto, Vice President, Institutional Marketing, Chicago Board Options
Exchange. Age 64.
John F. Lebor, 12233 West End, Lost Tree Village, North Palm Beach,
Florida. 33408; Director of the Company from September 1977 to May 1986; Trustee
of the Trust since April 1986. Director of Carlisle Retailers, Inc. Age 88.
William Harding Schneebeck, 251 Indian Harbor Road, Vero Beach,
Florida, 32963; Director of the Company from September 1977 to May 1986; Trustee
of the Trust since April 1986; retired, formerly Chairman of Midwestern Fidelity
Corp. Age 66.
*Paul R. Stewart, 400 TechneCenter Drive, Suite 220, Milford, Ohio,
45150; Treasurer of the Trust since October, 1995; Comptroller of the Adviser
since October, 1995; Audit Manager and Senior Manager, Price Waterhouse from
September, 1992 to 1995 and from August 1988 to August 1991; accountant for
Lexmark International from August 1991 to September 1992. Age 30.
*Donna M. Squeri, 400 TechneCenter Drive, Suite 220, Milford, Ohio
45150; Secretary of the Trust since October, 1995; Secretary and General Counsel
of the Adviser since September, 1995; in house counsel of Bartlett & Co. from
October, 1984 to September, 1993. Age 36.
*Messrs. Sall, Thayer, and Stewart and Ms. Squeri are affiliated
persons of the Trust and the Adviser as defined by the Investment Company Act of
1940. Messrs. Sall and Thayer are "interested persons" of the Trust as defined
by the Investment Company Act of 1940.
Messrs. Sall, Thayer, and Stewart and Ms. Squeri, each of whom is
employed by the Adviser, receive no remuneration from the Trust. Each Trustee of
the Trust other than Messrs. Sall and Thayer receives fees as follows: (a) an
annual fee of $3,000, payable in equal quarterly installments for services
during each fiscal quarter, (b) a $500 base fee plus $100 per fund for each
regular or special meeting of the Board of Trustees attended, and (c) $200 per
fund ($1,000 per fund for the Chairman) for each Audit and Contract Review
Committee meeting attended. The Trust also reimburses each Trustee for any
reasonable and necessary travel expenses incurred in connection with attendance
at such meetings. In addition, Trustees may receive attendance fees for service
on other committees.
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<PAGE> 68
The following table provides information about the compensation
received by each Trustee from the Trust for the year ended December 31, 1994.
<TABLE>
<CAPTION>
Name of Trustee Total Compensation from Trust
-------------------------------------------------------
<S> <C>
Stefen F. Brueckner $ 6,800
Kenneth A. Drucker $ 8,600
Beverly S. Gordon $ 6,800
John F. Lebor $15,800
Walter G. Sall None
William H. Schneebeck $ 8,600
Peter W. Thayer None
</TABLE>
The Trust has no bonus, profit sharing, pension or retirement plans for
its trustees, officers or employees.
COUNSEL
Frost & Jacobs, Cincinnati, Ohio, will pass upon the legality of shares
offered hereby and certain other matters pertaining to the Trust and the Gateway
funds.
INDEPENDENT PUBLIC ACCOUNTANTS AND FINANCIAL STATEMENTS
Arthur Andersen LLP, 425 Walnut Street, Cincinnati, Ohio 45202, serves
as independent public accountants of the Trust. Arthur Andersen LLP performs an
annual audit of each fund's financial statements, prepares each fund's tax
returns and provides financial, tax and accounting consulting services as
requested.
The financial statements and notes thereto, together with the reports
thereon of Arthur Andersen LLP dated January 23, 1995, are incorporated by
reference in this Statement of Additional Information.
PRINCIPAL HOLDERS OF FUND SHARES
INDEX PLUS FUND
As of December 4, 1995, the Index Plus Fund had 10,501,625 shares
outstanding. As of such date, each of the following persons or groups was known
by Trust management to be the record and/or beneficial owner (as defined below)
of the indicated amounts of the Fund's outstanding shares.
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<PAGE> 69
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent of Class
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Charles Schwab and Company 1,757,895 16.73%
101 Montgomery Street
San Francisco, California 94104
Trustees and Officers of the Trust as a group 59,526 less than 1%
Officers and Directors of the Adviser as a group 52,678 less than 1%
</TABLE>
MID CAP INDEX FUND
As of December 4, 1995, the Mid Cap Index Fund had 473,433 shares
outstanding. As of such date, each of the following persons or groups was known
by Trust management to be the record and/or beneficial owner (as defined below)
of the indicated amounts of the Fund's outstanding shares.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent of Class
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Andrew Wyeth 77,621 16.39%
Chadds Ford, Pennsylvania 19317
Betsy Wyeth (Growth) 50,585 10.68%
Chadds Ford, Pennsylvania 19317
Betsy Wyeth 50,453 10.65%
Chadds Ford, Pennsylvania 19317
Lawrence F. Silver, Trustee 38,227 8.07%
8901 North 58th Place
Paradise, Arizona 85253
R. S. Harrison, Trustee 26,303 5 .55%
440 Mt. Carmel Road
Cincinnati, Ohio 45244
Trustees and Officers of the Trust as a group 5,608 1 .18%
Officer and Directors of the Adviser as a group 476 less than 1%
</TABLE>
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<PAGE> 70
SMALL CAP INDEX FUND
As of December 4, 1995, the Small Cap Index Fund had 809,667 shares
outstanding. As of such date, each of the following persons or groups was known
by Trust management to be the record and/or beneficial owner (as defined below)
of the indicated amounts of the Fund's outstanding shares.
<TABLE>
<CAPTION>
Name and Address of Owner Number of Shares Percent of Class
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Andrew Wyeth 132,859 16.40%
Chadds Ford, Pennsylvania 19317
Betsy Wyeth 86,396 10.67%
Chadds Ford, Pennsylvania 19317
Betsy Wyeth (Growth) 65,024 8.03%
Chadds Ford, Pennsylvania 19317
Trustees and Officers of the Trust as a group 10,044 1.24%
Officers and Directors of the Adviser as a group 745 Less than 1%
</TABLE>
The Securities and Exchange Commission has defined "beneficial owner"
of a security to include any person who has voting power or investment power
with respect to any such security, any person who shares voting power or
investment power within respect to any such security. or any person who has the
right to acquire beneficial ownership of any such security within 60 days.
SHARES HELD BY ADVISER
As of December 4, 1995, the Adviser held in a fiduciary capacity the
indicated amounts of the outstanding shares of each fund. The Adviser has
investment and voting power over all shares held by it in a fiduciary capacity.
<TABLE>
<CAPTION>
Name of Fund Number of Shares Percentage of Shares
--------------------------------------------------------------------
<S> <C> <C>
Index Plus Fund 853,448 8.12%
Mid Cap Index Fund 274,543 57.98%
Small Cap Index Fund 417,560 51.57%
</TABLE>
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<PAGE> 71
SCHEDULE A
Stocks included in the S&P 100 Index
ALUMINUM COMPANY OF AMERICA GENERAL ELECTRIC COMPANY
AMERICAN ELECTRIC POWER COMPANY INC. GENERAL MOTORS CORPORATION
AMERICAN EXPRESS COMPANY GREAT WESTERN FINANCIAL CORPORATION
AMERICAN GENERAL CORPORATION H.J. HEINZ COMPANY
AMERICAN INTERNATIONAL GROUP INC. HALLIBURTON COMPANY
AMERITECH HARRAH'S ENTERTAINMENT, INC.
AMOCO CORPORATION HARRIS CORPORATION
AMP INCORPORATED HEWLETT PACKARD COMPANY
AT & T CORP HOMESTAKE MINING COMPANY
ATLANTIC RICHFIELD COMPANY HONEYWELL INC.
AVON PRODUCTS INC. INTEL CORPORATION
BAKER HUGHES INCORPORATED INTERNATIONAL BUSINESS MACHINES CORP
BANKAMERICA CORPORATION INTERNATIONAL FLAVORS AND FRAGRANCES
BAXTER INTERNATIONAL INC. INTERNATIONAL PAPER COMPANY
BELL ATLANTIC CORPORATION ITT CORPORATION
BETHLEHEM STEEL CORPORATION JOHNSON AND JOHNSON
BLACK AND DECKER CORPORATION K MART CORPORATION
BOEING COMPANY LIMITED INC.
BOISE CASCADE CORPORATION MALLINKRODT GROUP INC.
BRISTOL MYERS SQUIBB COMPANY MAY DEPARTMENT STORES COMPANY
BRUNSWICK CORPORATION MCDONALDS CORPORATION
BURLINGTON NORTHERN SANTA FE CORP NEW MCI COMMUNICATIONS CORPORATION
CAPITAL CITIES ABC INC. MERCK AND COMPANY INC.
CERIDIAN CORPORATION MERRILL LYNCH AND COMPANY
CHAMPION INTERNATIONAL CORPORATION MINNESOTA MINING AND MANUFACTURING
CHRYSLER CORPORATION MOBIL CORPORATION
CIGNA CORPORATION MONSANTO COMPANY
CITICORP NATIONAL SEMICONDUCTOR CORPORATION
COASTAL CORPORATION NORFOLK SOUTHERN CORPORATION
COCA COLA COMPANY NORTHERN TELECOM LIMITED
COLGATE PALMOLIVE COMPANY NYNEX CORPORATION
COMPUTER SCIENCES CORPORATION OCCIDENTAL PETROLEUM CORPORATION
DELTA AIR LINES INC. PEPSICO INC.
DIGITAL EQUIPMENT CORP. PHARMACIA & UPJOHN
DISNEY, WALT COMPANY POLAROID CORPORATION
DOW CHEMICAL COMPANY RALSTON PURINA COMPANY
DU PONT COMPANY RAYTHEON COMPANY
EASTMAN KODAK COMPANY ROCKWELL INTERNATIONAL CORPORATION
ENTERGY CORPORATION SCHLUMBERGER LIMITED
EXXON CORPORATION SEARS ROEBUCK AND COMPANY
FEDERAL EXPRESS CORPORATION SOUTHERN COMPANY
FIRST CHICAGO CORPORATION TANDY CORPORATION
FIRST FIDELITY BANCORP TEKTRONIX INC.
FIRST INTERSTATE BANCORP. TELEDYNE INC.
FLUOR CORPORATION TEXAS INSTRUMENTS INCORPORATED
FORD MOTOR COMPANY TOYS R US INC.
GENERAL DYNAMICS CORPORATION UNICOM CORP.
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<PAGE> 72
UNISYS CORPORATION
UNITED TECHNOLOGIES CORPORATION
WAL MART STORES INC.
WEYERHAEUSER COMPANY
WILLIAMS COMPANIES
XEROX CORPORATION
Page 39
<PAGE> 73
SCHEDULE B
Stocks included in the S&P MidCap 400 Index
A. SCHULMAN INC. BJ SERVICES COMPANY
A.G. EDWARDS INC. BLACK HILLS CORPORATION
A.H. BELO CORPORATION CLASS A BMC SOFTWARE INC.
A.T. CROSS COMPANY BOB EVANS FARMS INC
ACUSON CORPORATION BORLAND INTERNATIONAL INC.
ADC TELECOMMUNICATIONS INC. BOWATER INCORPORATED
ADOBE SYSTEMS BRINKER INTERNATIONAL INC.
ADVANCED TECHNOLOGY LABORATORIES INC BROOKLYN UNION GAS COMPANY
AES CORPORATION BRUSH WELLMAN INC.
AFLAC INC. BUFFETS INC.
AIR AND WATER TECHNOLOGIES CORP. BURLINGTON INDUSTRIES INCORPORATED
AIRBORNE FREIGHT CORPORATION CABOT CORPORATION
ALASKA AIR GROUP INC. CADENCE DESIGN SYSTEMS INC.
ALBANY INTERNATIONAL CORP. CL. A CALGON CARBON CORP.
ALBEMARLE CORP CALIFORNIA ENERGY COMPANY
ALEXANDER AND BALDWIN COMPANY CALLAWAY GOLF COMPANY
ALLEGHENY LUDLUM CORPORATION CALMAT COMPANY
ALLEGHENY POWER SYSTEM INC. CARDINAL HEALTH INC.
ALTERA CORPORATION CARLISLE COMPANIES INC. HOLDING CO.
ALUMAX INC. CARPENTER TECHNOLOGY CORPORATION
AMERICAN FINANCIAL GROUP INC. CARTER WALLACE INC.
AMERICAN POWER CONVERSION CORP. CBI INDUSTRIES INC.
AMERICAN PRESIDENT COMPANIES LTD. CENTOCOR INC.
AMETEK INC CENTRAL FIDELITY BANKS INC.
ANADARKO PETROLEUM CORP. CENTRAL LOUISIANA ELECTRIC CO INC
ANALOG DEVICES INC CENTRAL MAINE POWER COMPANY
ANGELICA CORPORATION CENTURY TELEPHONE ENTERPRISES
ANN TAYLOR STORES, INC. CHARLES SCHWAB CORPORATION
AON CORPORATION CHESAPEAKE CORPORATION
APACHE CORPORATION CHIRON CORPORATION
APPLIED BIOSCIENCE INTERNATIONAL INC CHRIS CRAFT INDUSTRIES INC.
APRIA HEALTHCARE GROUP INC. CHURCH & DWIGHT CO. INC.
ARNOLD INDUSTRIES INC. CINTAS CORPORATION
ARROW ELECTRONICS INC. CIRCUS CIRCUS ENTERPRISES INC.
ARVIN INDUSTRIES INC. CIRRUS LOGIC INC.
AST RESEARCH INC. CITY NATIONAL CORPORATION
ATLANTA GAS LIGHT COMPANY CLAIRES STORES INC.
ATLANTIC ENERGY INC. CLAYTON HOMES INCORPORATED
ATLANTIC SOUTHEAST AIRLINES INC. CLEVELAND CLIFFS INC HOLDING COMPANY
ATMEL CORP CML GROUP INC.
AVNET INC CMS ENERGY CORPORATION
BANCORP HAWAII INC COCA COLA ENTERPRISES INC.
BANTA CORP. COMDISCO INC.
BATTLE MOUNTAIN GOLD COMPANY COMERICA INCORPORATED
BAY NETWORKS INC COMPUWARE CORP
BEAR STEARNS COMPANIES INC. COMSAT CORPORATION
BECKMAN INSTRUMENTS INC. CONNER PERIPHERALS INC.
BERGEN BRUNSWIG CORPORATION CONSOLIDATED PAPERS INC.
BEST BUY COMPANY INC. CONVEX COMPUTER CORPORATION
BETZ LABORATIES CORAM HEALTHCARE CORP.
BIOGEN INC. CORDIS CORPORATION
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<PAGE> 74
CPI CORPORATION GLATFELTER, P. H. COMPANY
CRACKER BARREL OLD COUNTRY STORE INC GLOBAL MARINE INC.
CRESTAR FINANCIAL CORP. GOULDS PUMPS INCORPORATED
CROMPTON AND KNOWLES CORPORATION GRANITE CONSTRUCTION INCORPORATED
CYPRESS SEMICONDUCTOR CORPORATION GREEN TREE ACCEPTANCE INC.
DANAHER CORPORATION H.B. FULLER COMPANY
DATASCOPE CORPORATION HANCOCK FABRICS INC.
DAUPHIN DEPOSIT CORPORATION HANNA, M. A. COMPANY
DEAN FOODS COMPANY HANNAFORD BROTHERS COMPANY
DELL COMPUTER CORPORATION HARLEY DAVIDSON INC.
DELMARVA POWER AND LIGHT COMPANY HARSCO CORPORATION
DENTSPLY INTERNATIONAL INC. HARTFORD STEAM BOILER INSPEC AND INS
DEXTER CORPORATION HAWAIIAN ELECTRIC INDUSTRIES INC.
DIAGNOSTIC PRODUCTS CORPORATION HEALTH CARE & RETIREMENT
DIAMOND SHAMROCK INC. HEALTHCARE COMPARE CORP.
DIEBOLD INCORPORATED HEALTHSOURCE INC
DOLE FOOD COMPANY INC. HEALTHSOUTH REHABILITATION CORP
DOLLAR GENERAL CORPORATION HEILIG MEYERS COMPANY
DONALDSON COMPANY INC. HERMAN MILLER INC.
DREYERS GRAND ICE CREAM INC. HIBERNIA CORP
DURIRON COMPANY HOME SHOPPING NETWORK INC.
DUTY FREE INTERNATIONAL INC. HON INDUSTRIES INC
EL PASO NATURAL GAS COMPANY HORIZON CMS HEALTHCARE CORP
ELECTRONIC ARTS INC HOSPITALITY FRANCHISE SYSTEMS, INC
EMC CORPORATION HOUGHTON MIFFLIN COMPANY
ENNIS BUSINESS FORMS INC. HUBBELL INCORPORATED
EQUIFAX INC. IBP INC.
ETHYL CORPORATION IDAHO POWER COMPANY
EXABYTE CORPORATION ILLINOIS CENTRAL CORPORATION
FAMILY DOLLAR STORES ILLINOVA CORPORATION HOLDING C
FEDERAL MOGUL CORPORATION IMC GLOBAL INC.
FEDERAL SIGNAL CORPORATION INDIANA ENERGY INC.
FERRO CORPORATION INFORMATION RESOURCES INC.
FHP INTERNATIONAL CORP. INFORMIX CORPORATION
FIFTH THIRD BANCORP INTEGRATED DEVICE TECHNOLOGY INC.
FINGERHUT COMPANIES INC. INTELLIGENT ELECTRONICS INC.
FIRST BRANDS CORP. INTERNATIONAL DAIRY QUEEN INC
FIRST OF AMERICA BANK CORPORATION INTERNATIONAL GAME TECHNOLOGY
FIRST SECURITY CORPORATION INTERNATIONAL MULTIFOODS CORPORATION
FIRST TENNESSEE NATIONAL CORP. IPALCO ENTERPRISES INC.
FIRST VIRGINIA BANKS INC. IVAX CORPORATION
FISERV INC. J. M. SMUCKER COMPANY
FLIGHTSAFETY INTERNATIONAL INC. J.B. HUNT TRANSPORT SERVICES INC.
FLORIDA PROGRESS CORPORATION JACOBS ENGINEERING GROUP INC
FLOWER INDUSTRIES INC. JONES APPAREL GROUP INC.
FOREST LABORATORIES INC. KANSAS CITY POWER & LIGHT
FOUNDATION HEALTH CORPORATION KANSAS CITY SOUTHERN INDUSTRIES
FRANKLIN RESOURCES INC. KAYDON CORPORATION
FRED MEYER INC. KELLY SERVICES INC.
FRONTIER CORPORATION KEMPER CORPORATION
GATX CORPORATION KENNAMETAL INC
GENCORP INC. KEYSTONE INTERNATIONAL INC.
GENZYME CORPORATION KOHLS CORP.
GEORGIA GULF CORP. LABORATORY CORP OF AMERICA
GIBSON GREETINGS INC. LANCASTER COLONY CORPORATION
Page 41
<PAGE> 75
LANCE INC NORDSON CORPORATION
LANDS END INC. NORTHEAST UTILITIES
LAWSON PRODUCTS INC NORTHERN TRUST CORPORATION
LAWTER INTERNATIONAL INC. NOVACARE INC.
LEE ENTERPRISES INCORPORATED OCTEL COMMUNICATIONS CORP.
LEGGETT AND PLATT INC OEA INC.
LG AND E ENERGY CORP. OFFICE DEPOT INC.
LINCOLN TELECOMMUNICATIONS COMPANY OKLAHOMA GAS AND ELECTRIC COMPANY
LINEAR TECHNOLOGY CORPORATION OLIN CORPORATION
LITTON INDUSTRIES INC. OLSTEN CORPORATION
LOCTITE CORPORATION OMNICOM GROUP INC.
LONGVIEW FIBRE COMPANY OREGON STEEL MILLS INC.
LSI LOGIC CORPORATION OUTBACK STEAKHOUSE
LUBRIZOL CORPORATION OVERSEAS SHIPHOLDING GROUP INC.
LUKENS INC. DELAWARE HOLDINGS CO. PACIFIC HEALTHCARE SYSTEMS
LYONDELL PETROCHEMICAL COMPANY PAINE WEBBER GROUP INC.
MACFRUGALS BARGAINS CLOSE OUTS INC. PARAMETRIC TECHNOLOGY CORPORATION
MAGNETEK INC. PARKER AND PARSLEY PETROLEUM COMPANY
MANPOWER INC. PARKER DRILLING COMPANY
MAPCO INC. PAYCHEX INC.
MARK IV INDUSTRIES INC. PENTAIR INC.
MARSHALL AND ILSLEY CORPORATION PERRIGO COMPANY
MAXXAM INC. PHH GROUP INC.
MCCORMICK AND COMPANY INCORPORATED PINNACLE WEST CAPITAL CORPORATION
MCKESSON CORPORATION POLICY MANAGEMENT SYSTEMS CORP.
MCN CORPORATION PORTLAND GENERAL CORP. HOLDING CO.
MEASUREX CORPORATION POTOMAC ELECTRIC POWER COMPANY
MEDIA GENERAL INC. PRECISION CASTPARTS CORPORATION
MENTOR GRAPHICS CORPORATION PROGRESSIVE CORPORATION
MERCANTILE BANCORPORATION INC. PROMUS HOTEL CORPORATION
MERCANTILE BANKSHARES CORPORATION PROVIDENT LIFE AND ACCIDENT INS CL B
MERIDIAN BANCORP INC. PUBLIC SERVICE COMPANY OF COLORADO
MICHAEL FOODS INC. PUBLIC SERVICE COMPANY OF NEW MEXICO
MICROWAREHOUSE INC PUGET SOUND POWER AND LIGHT CO.
MID AMERICAN ENGERGY COMPANY QUAKER STATE CORPORATION
MINNESOTA POWER AND LIGHT COMPANY QUANTUM CORPORATION
MIRAGE RESORTS INCORPORATED QUESTAR CORP HOLDING CO
MODINE MANUFACTURING COMPANY RANGER OIL LIMITED
MOLEX INCORPORATED RAYONIER INC.
MONTANA POWER COMPANY REGIONS FINANCIAL CORP
MORRISON RESTAURANTS INC. REVCO DS INC.
MURPHY OIL CORPORATION REYNOLDS AND REYNOLDS COMPANY
MYLAN LABORATORIES INC. ROHR INDUSTRIES INC.
NABORS INDUSTRIES INC. ROLLINS ENVIRONMENTAL SERVICES INC.
NATIONAL FUEL GAS COMPANY ROLLINS INC.
NATIONAL PRESTO INDUSTRIES INC. RP SCHERER CORP
NCH CORPORATION RPM INCORPORATED
NELLCOR INCORPORATED RUDDICK CORPORATION
NEVADA POWER COMPANY SAVANNAH FOOD INC.
NEW ENGLAND ELECTRIC SYSTEM SBARRO INCORPORATED
NEW YORK STATE ELECTRIC AND GAS SCANA CORPORATION HOLDING COMPANY
NEXTEL COMMUNICATIONS INC. SCHOLASTIC CORP
NINE WEST SEAGULL ENERGY CORPORATION
NIPSCO INDUSTRIES INC. SEALED AIR CORPORATION
NOBLE AFFILIATES INC. SEGATE TECHNOLOGY INC.
Page 42
<PAGE> 76
SENSORMATIC ELECTRONICS CORPORATION TIDEWATER INC.
SEQUA CORPORATION, CLASS A TIFFANY AND COMPANY
SEQUENT COMPUTER SYSTEMS INC. TOPPS COMPANY INC.
SERVICE MERCHANDISE COMPANY INC. TOSCO CORPORATION
SHAW INDUSTRIES INC. TRANSATLANTIC HOLDINGS INC.
SIZZLER INTERNATIONAL INC. TRINITY INDUSTRIES INC.
SMITH INTERNATIONAL INC. TYSON FOODS INC
SOLECTRON CORP U.S. ROBOTICS
SONOCO PRODUCTS UJB FINANCIAL CORP.
SOTHEBY'S HOLDINGS, INC. (CLASS A) UNIFI INCORPORATED
SOUTHDOWN INCORPORATED UNIVERSAL CORPORATION HOLDING CO.
SOUTHERN NEW ENGLAND TELECOMMUN CORP. UNIVERSAL FOODS CORPORATION
SOUTHTRUST CORPORATION UTILICORP UNITED INC.
SOUTHWESTERN PUBLIC SERVICE COMPANY VALERO ENERGY CORPORATION
STANDARD REGISTER COMPANY VALUE HEALTH INC.
STANHOME INCORPORATED VANGUARD CELLULAR SYSTEMS INC.
STAPLES INC. VARCO INTERNATIONAL INC.
STATE STREET BOSTON CORP. VARIAN ASSOCIATES INC.
STERLING CHEMICALS VERIFONE INC.
STEWART AND STEVENSON SERVICES INC. VISHAY INTERTECHNOLOGY
STORAGE TECHNOLOGY CORPORATION VONS COMPANIES INC.
STRATUS COMPUTER INC. VULCAN MATERIALS COMPANY
STRUCTURAL DYNAMICS RESEARCH CORP. WABAN INC.
STRYKER CORPORATION WALLACE COMPUTER SERVICES INC.
SUNAMERICA INC. WASHINGTON GAS LIGHT COMPANY
SUNDSTRAND CORPORATION WASHINGTON POST COMPANY
SUPERIOR INDUSTRIES INTERNATIONAL WATTS INDUSTRIES INC.
SURGICAL CARE AFFILIATES INC. WAUSAU PAPER MILLS COMPANY
SYMANTEC CORPORATION WEATHERFORD INTERNATIONAL INC
SYMBOL TECHNOLOGIES INC. WELLMAN INC.
TAMBRANDS INC. WEST ONE BANCORP.
TCA CABLE TV INCORPORATED WESTERN PUBLISHING GROUP INC.
TECO ENERGY INC. WILMINGTON TRUST CORPORATION
TECUMSEH PRODUCTS CO. WISCONSIN ENERGY CORP. HOLDING CO.
TELEFLEX INCORPORATED WITCO CORPORATION
TELEPHONE AND DATA SYSTEMS INC. WORLDCOM INC.
TERADYNE INC. WPL HOLDINGS INC.
THERMO ELECTRON CORPORATION XILINX INC.
THIOKOL CORPORATION YORK INTERNATIONAL CORPORATION
Page 43
<PAGE> 77
SCHEDULE C
Stocks included in the Wilshire Small Cap Index
20TH CENTURY INDS CAL CENTRAL HUDSON GAS AND ELECTRIC CORP
A.T. CROSS COMPANY CHARMING SHOPPES INC.
ACCLAIM ENTERTAINMENT CHEMED CORPORATION
ACUSON CORPORATION CHESAPEAKE CORPORATION
ACX TECHNOLOGIES INC. CHEYENNE SOFTWARE INC.
ADVANCED TECHNOLOGY LABORATORIES INC CHIQUITA BRANDS INTL INC
ADVANCED TISSUE SCIENCES INC. CHRIS CRAFT INDUSTRIES INC.
AIR AND WATER TECHNOLOGIES CORP. CILCORP INC HOLDING COMPANY
AIRBORNE FREIGHT CORPORATION CINCINNATI MILACRON INC.
AK STEEL HOLDING CORP CITY NATIONAL CORPORATION
ALASKA AIR GROUP INC. CLARCOR INC.
ALBANY INTERNATIONAL CORP. CL. A COBRA GOLF
ALEX BROWN INCORPORATED COLLECTIVE BANCORP, INC.
ALLWASTE INC. COMDISCO INC.
AMERICAN BANKERS INSURANCE GROUP INC COMPASS BANCSHARES
AMETEK INC COMPUSA INC.
AMSCO INTERNATIONAL INC. CONE MILLS CORP.
ANGELICA CORPORATION CORDIS CORPORATION
ARGOSY GAMING COMPANY CREDENCE SYSTEMS CORP
ARNOLD INDUSTRIES INC. CYRIX CORP
ARVIN INDUSTRIES INC. DATA GENERAL CORPORATION
AST RESEARCH INC. DAUPHIN DEPOSIT CORPORATION
ASTORIA FINANCIAL CORP DIAGNOSTIC PRODUCTS CORPORATION
AURA SYSTEMS INC. DONALDSON COMPANY INC.
AVID TECHNOLOGY INC. DRESS BARN INC.
BALDOR ELECTRIC COMPANY DREYERS GRAND ICE CREAM INC.
BALLARD MEDICAL PRODUCTS DUTY FREE INTERNATIONAL INC.
BANTA CORP. EAGLE HARDWARE AND GARDEN INC.
BASSETT FURNITURE INDUSTRIES INC EASTERN UTILITIES ASSOCIATES
BECKMAN INSTRUMENTS INC. ELECTRONICS FOR IMAGING
BED BATH & BEYOND EXABYTE CORPORATION
BELL BANCORP FEDERAL MOGUL CORPORATION
BERGEN BRUNSWIG CORPORATION FIRST AMERICAN CORP. OF TENNESSEE
BIC CORPORATION FIRST COMMERCE CORP OF NEW ORLEANS
BIRMINGHAM STEEL CORPORATION FLOWER INDUSTRIES INC.
BJ SERVICES COMPANY FORE SYSTEMS INC.
BLAIR CORPORATION FOREMOST CORPORATION OF AMERICA
BLOCK DRUG COMPANY FOURTH FINANCIAL CORPORATION
BROWN GROUP INC. FOXMEYER HEALTH CORP
BRUSH WELLMAN INC. FRED MEYER INC.
BWIP HOLDING INC. CL A FTP SOFTWARE INC.
CALGON CARBON CORP. GAYLORD CONT CLA
CALIFORNIA FEDERAL SAVINGS BANK CL A GENCORP INC.
CARLISLE COMPANIES INC. HOLDING CO. GEOTEK COMMUNICATIONS INC.
CARPENTER TECHNOLOGY CORPORATION GERBER SCIENTIFIC INC.
CATELLUS DEVELOPMENT CORPORATION GIBSON GREETINGS INC.
CATO CORPORATION GIDDINGS AND LEWIS INC. DEP SHRS
CENTEX CORPORATION GLENDALE FEDERAL BANK
CENTOCOR INC. GLOBAL MARINE INC.
Page 44
<PAGE> 78
GLOBAL VILLAGE COMMUNICATIONS MORRISON KNUDSEN CORPORATION
GOULDS PUMPS INCORPORATED MORRISON RESTAURANTS INC.
GRAND CASINOS INC. NABORS INDUSTRIES INC.
GREAT FINANCIAL CORP. NAC RE CORP
H.B. FULLER COMPANY NACCO INDUSTRIES INC HOLDING CO CL A
HAEMONETICS CORPORATION NCH CORPORATION
HANDLEMAN COMPANY NETMANAGE INC.
HANDY AND HARMAN NETWORK GENERAL
HECLA MINING COMPANY NEW ENGLAND BUSINESS SERVICE INC.
HERBALIFE INT'L INC. NORAM ENERGY CORP.
HOME FINANCIAL CORP DEL H OCTEL COMMUNICATIONS CORP.
HOME SHOPPING NETWORK INC. OMI CORPORATION
HON INDUSTRIES INC ONBANCORP
HOUGHTON MIFFLIN COMPANY ONEOK INC.
IES INDUSTRIES INC. ORANGE AND ROCKLAND UTILITIES INC.
INFORMATION RESOURCES INC. OSHKOSH B GOSH INC.
INTEGON CORPORATION OVERSEAS SHIPHOLDING GROUP INC.
INTEGRATED HEALTH SERVICES PEGASUS GOLD INC.
INTELLIGENT ELECTRONICS INC. PENTAIR INC.
INTERNATIONAL CABLETEL PEOPLES BK BRIDGEPORT
INTERNATIONAL DAIRY QUEEN INC PERRIGO COMPANY
INTERNATIONAL MULTIFOODS CORPORATION PETROLITE CORPORATION
INTERSTATE BAKERIES CORPORATION PHH GROUP INC.
J.B. HUNT TRANSPORT SERVICES INC. PITTSTON SERVICES GROUP
JOHN ALDEN FINANCIAL CORP POGO PRODUCING COMPANY
JONES APPAREL GROUP INC. PREMIER BANCORP INC.
KAMAN CORPORATION PRESSTEK INC
KAUFMAN AND BROAD HOME CORP. PUBLIC SERVICE COMPANY OF NEW MEXICO
KELLWOOD COMPANY PULITZER PUBLISHING CO.
KENNAMETAL INC PULTE CORPORATION
KIMBALL INTERNATIONAL INC PYXIS CORPORATION
LA Z BOY CHAIR COMPANY QUAKER STATE CORPORATION
LANDS END INC. QUANTUM CORPORATION
LATTICE SEMICONDUCTOR RALCORP HOLDINGS INC.
LAWSON PRODUCTS INC RELIANCE GROUP HOLDINGS INC.
LAWTER INTERNATIONAL INC. RIGS NATIONAL CORP WASHINGTON
LCI INTERNATIONAL INC. ROLLINS INC.
LENNAR CORPORATION ROLLINS TRUCK LEASING CORP.
LIBERTY CORPORATION ROOSEVELT FINANCIAL GROUP
LIFE PARTNERS GROUP INC. ROSS STORES INC.
LIFE RE CORPORATION ROWAN COMPANIES INC.
LIFE USA HOLDING, INC. RUSS BERRIE AND COMPANY INC.
LONG ISLAND BANCORP S3 INC.
LUBYS CAFETERIAS INC. SAVANNAH FOOD INC.
MACFRUGALS BARGAINS CLOSE OUTS INC. SBARRO INCORPORATED
MACROMEDIA INC. SEAFIELD CAPITAL CORP.
MAXXAM INC. SEAGULL ENERGY CORPORATION
MDU RESOURCES GROUP INC. SEQUENT COMPUTER SYSTEMS INC.
MEASUREX CORPORATION SHARED MEDICAL SYSTEMS CORPORATION
MEDIC COMPUTER SYSTEM INC. SHOREWOOD PACKAGING CORP.
MERISEL, INC. SIERRA PACIFIC RESOURCES HOLDING CO.
MICHAEL FOODS INC. SILICON VALLEY GROUP INC.
MID ATLANTIC MEDICAL SERVICES SIZZLER INTERNATIONAL INC.
MIDWEST GRAIN PRODUCTS INC. SMITH INTERNATIONAL INC.
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<PAGE> 79
SOTHEBY'S HOLDINGS, INC. (CLASS A) TUCSON ELECTRIC POWER COMPANY
SOUTHDOWN INCORPORATED TULTEX CORPORATION
SOUTHERN INDIANA GAS AND ELECTRIC CO UGI CORPORATION
SOUTHWEST GAS CORPORATION UNITED COS FINANCIAL CORP
SOUTHWESTERN ENERGY COMPANY US LONG DISTANCE CORP
STANDARD FEDERAL BANCORPORATION INC. VALLEY NATIONAL BANCOPR
HOLDING CO. VANGUARD CELLULAR SYSTEMS INC.
STANDARD PRODUCTS COMPANY VENTRITEX INC.
STANDARD REGISTER COMPANY VERIFONE INC.
STANHOME INCORPORATED VLSI TECHNOLOGY, INC.
STARBUCKS CORPORATION WALLACE COMPUTER SERVICES INC.
STERLING CHEMICALS WASHINGTON ENERGY COMPANY
STRUCTURAL DYNAMICS RESEARCH CORP. WASHINGTON NATIONAL CORPORATION
SUMMIT BANCORPORATION WAUSAU PAPER MILLS COMPANY
SUMMIT TECHNOLOGY INC. WEST COMPANY INCORPORATED
SUNSHINE MINING COMPANY WESTERN DIGITAL, CORP
SUPERIOR INDUSTRIES INTERNATIONAL WESTERN NATIONAL CORP.
SURGICAL CARE AFFILIATES INC. WESTERN PUBLISHING GROUP INC.
SYMBOL TECHNOLOGIES INC. WESTPOINT STEVENS INC.
T. ROWE PRICE ASSOCIATES INC. YELLOW FREIGHT SYSTEM INC
TCA CABLE TV INCORPORATED ZENITH NATIONAL INSURANCE CORP
TELEFLEX INCORPORATED ZURN INDUSTRIES INC.
THIOKOL CORPORATION
Page 46
<PAGE> 80
SCHEDULE D
The beta measurements used in the Combined Prospectus were calculated by using
MicroSoft Excel spreadsheets and the statistical function slope available in
MicroSoft Excel. The SLOPE function returns the slope of the linear regression
line through data points in known y's and known x's. The slope is the vertical
distance divided by the horizontal distance between any two points on the line,
which is the rate of change along the regression line.
The equation for beta (slope) is shown below.
Beta equals nExy - (Ex)(Ey)
---------------
nEx(2) - (Ex)(2)
Where
y equals the Fund's monthly total returns in the period
x equals= the Index's monthly total returns in the period
<PAGE> 81
PROSPECTUS
NOVEMBER 1, 1994
CINCINNATI FUND
The Cincinnati Fund seeks capital appreciation through investment in
the common stock of companies with an important presence in the Greater
Cincinnati Area. Through the use of a proprietary model, portfolio stocks are
selected on the basis of level of employment and nature of operations in the
Greater Cincinnati Area. Certain industry diversification, liquidity, market
capitalization, and listing requirements are also included in the model.
THE GATEWAY FAMILY OF MUTUAL FUNDS
The Fund is a series of The Gateway Trust. This Prospectus sets forth
concisely the information about the Fund that you should know before investing.
You should keep it for future reference. Additional information has been filed
with the Securities and Exchange Commission and is included in the Statement of
Additional Information of the Fund dated November 1, 1994. The Statement of
Additional Information ("SAI") is incorporated herein by reference. You can
obtain more information about the Fund or free copies of the SAI by writing or
calling: THE GATEWAY TRUST, P.O. BOX 5211, CINCINNATI, OHIO 45201-5211, (800)
354-5525.
THE SECURITIES AND EXCHANGE COMMISSION DOES NOT APPROVE SHARES OF ANY MUTUAL
FUND. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
CINCINNATI
FUND
<PAGE> 82
TABLE OF CONTENTS
FEES AND EXPENSES...................3 The Cincinnati Fund is 100% no-load.
There are no sales charges, 12b-1 fees,
redemption fees or annual account
charges when you invest in the Fund.
HOW TO OPEN AN ACCOUNT..............4 New investors can open an account by
mail or telephone.
HOW TO BUY ADDITIONAL SHARES........5 Shares may be purchased by check, wire
transfer or an automatic withdrawal
from your checking account.
HOW TO SELL SHARES..................6 Redemption requests can be made by mail
or by telephone.
ADDITIONAL SHAREHOLDER INFORMATION..7 Additional information about buying and
selling shares.
DIVIDENDS AND DISTRIBUTIONS.........8 Investors may reinvest their
distributions at no charge.
PERFORMANCE AND RISK INFORMATION....9 Performance and risk information.
ABOUT THE INVESTMENT MANAGER.......10 Gateway Investment Advisers, Inc.
provides investment advisory services
to the Fund.
HOW FUND SHARES ARE PRICED.........11 The Fund's share price is available 24
hours a day by calling (800) 354-5525.
TAXES..............................12 Distributions generally are taxable as
ordinary income or capital gains.
INVESTMENT PRACTICES AND
RESTRICTIONS.....................13 Investment management practices follow
specific guidelines. The Fund has
adopted certain investment
restrictions.
GENERAL INFORMATION ABOUT GATEWAY..15 Additional information on The Gateway
Trust and its Trustees.
- -----------------------------------------------------------------------------
2 CINCINNATI FUND
<PAGE> 83
- ---------------------------- FEES AND EXPENSES ------------------------------
THE CINCINNATI FUND IS 100% NO-LOAD. YOU DO NOT PAY ANY SALES CHARGES WHEN YOU
INVEST IN THE CINCINNATI FUND.
SHAREHOLDER TRANSACTION EXPENSES
The Cincinnati Fund (the "Fund") does not charge a fee for purchases,
exchanges or redemptions. The Fund is 100% no-load.
SHAREHOLDER TRANSACTION EXPENSES
--------------------------------
Maximum Sales Load on Purchase None
Maximum Sales Load on
Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
The custodian of the Fund charges $10 for each wire transfer.
FUND OPERATING EXPENSES
Annual fund operating expenses are paid from the Fund's assets. The
Fund pays a management fee to Gateway Investment Advisers, Inc. (the
"Adviser"). The Fund also pays other expenses for services such as maintaining
shareholder records and furnishing shareholder statements and Fund reports.
The Fund's expenses are factored into its share price each day and are not
charged directly to shareholder accounts. The investment advisory contract for
the Fund provides for a management fee computed at an annual rate of 0.50% of
its average daily net assets. "Other Expenses" in the table have been
estimated based on expenses the Fund expects to incur in 1995.
ANNUAL FUND OPERATING EXPENSES
--------------------------------
(as a percentage of average net assets)
Management Fees 0.50%
12b-1 Fees 0.00%
Other Expenses 0.66%
-----
Total Fund Operating Expenses 1.16%
=====
EXAMPLE
Assume that the Fund's annual return is 5% and that its operating
expenses are exactly as previously described in the Fund Operating Expenses
table. For every $1,000 you invested, the table below shows the amount of
expenses you would incur if you sold your shares after the number of years
indicated. This example should not be considered a representation of past or
future expenses. Actual expenses may be greater or lesser than those shown.
CINCINNATI
FUND
----------
One Year $ 12
Three Years $ 37
The purpose of these tables is to assist you in understanding the
direct and indirect costs and expenses you will bear as a Fund shareholder.
- ----------------------------------------------------------------------------
CINCINNATI FUND 3
<PAGE> 84
- --------------------------HOW TO OPEN AN ACCOUNT--------------------------------
THE CINCINNATI FUND IS AVAILABLE FOR INDIVIDUALS, IRAS, TRUSTS AND PENSION PLANS
OPENING A NEW ACCOUNT
You may open an account by mail or by telephone. The minimum initial
investment generally is $1,000. No sales commission is charged by the Fund for
purchases or redemptions of its shares.
BY MAIL
If you wish to open your account by mail, please complete and sign the
New Account Application Form which accompanies this Prospectus. The
application has instructions to assist you. Please indicate the amount of your
investment in the Fund. When you have completed the application, please mail
it to: THE GATEWAY TRUST, SHAREHOLDER SERVICES, P. O. BOX 5211, CINCINNATI, OH
45201-5211.
Please include your check or money order payable to THE GATEWAY TRUST
with your application.
BY TELEPHONE
If you open your account by telephone, you must wire your investment to
The Gateway Trust. If you wish to open your account by telephone, please call
Gateway shareholder services at (800) 354-5525 for instructions. You must
provide the following information to open your new account: your name, your
address, your social security or tax I.D. number, the size of your initial
investment, the Gateway fund in which you wish to invest and the name and
address of your financial institution wiring the funds. You must then instruct
your financial institution to wire the funds to: THE GATEWAY TRUST, C/O STAR
BANK, N.A., ABA #042-0000-13, CINCINNATI, OHIO.
You must send the following information with your wire: your name,
your Gateway account number, and the name of the Fund. See Page 7 for
additional information about wire transfers and telephone instructions.
OPENING A NEW IRA ACCOUNT/TRANSFER OF EXISTING IRA
If you wish to start a new IRA in the Fund or transfer an existing one,
please call Gateway shareholder services to obtain the IRA Investment Kit. You
can move an existing IRA from a bank or other mutual fund by completing the IRA
Transfer Form included in the Kit. If you wish to transfer or roll over money
from an employer-sponsored plan such as a 401(k) plan, please call Gateway
shareholder services at (800) 354-5525 to obtain the appropriate forms.
Gateway IRAs are FREE of any annual charges or transaction fees.
OPENING A TRUST/PENSION PLAN ACCOUNT
If you wish to open a trust account in the Fund, please complete the
New Account Application Form. In the registration section, give the full legal
name of the trust. Pension plans may invest in the Fund by completing the New
Account Application Form.
OPENING A UNIFORM GIFT TO MINORS ACT ACCOUNT
If you plan to open a Gateway account for a minor (typically used for
educational savings plans), please complete the UGMA/UTMA section of the New
Account Application Form. Be sure to include the minor's social security
number.
- --------------------------------------------------------------------------------
4 CINCINNATI FUND
<PAGE> 85
------------------HOW TO BUY ADDITIONAL SHARES--------------------
THE MINIMUM AMOUNT FOR AN ADDITIONAL INVESTMENT IS $100.
You may add to your Gateway account at any time by choosing one of the
following purchase options. The minimum amount for an additional investment is
$100. If your purchase request is received in good order by 4:00 PM Eastern
Time, your purchase will be based on that day's closing price for the Fund.
After each purchase, you will receive a confirmation statement showing
the value of your account. Certificates are not issued for Fund shares.
BY MAIL
The most common way of purchasing shares in the Fund is by mail.
Please send your check or money order and an Additional Investment Form in the
prepaid envelope. Additional Investment Forms and prepaid envelopes are
included with each confirmation statement, quarterly report and periodic
newsletter sent to you. Please make all checks or money orders payable to The
Gateway Trust and mail to: THE GATEWAY TRUST, SHAREHOLDER SERVICES, P.O. BOX
5211, CINCINNATI, OH 45201-5211.
BY WIRE
If you wish to avoid any mail delay, you may purchase shares by wire.
Please call Gateway shareholder services to arrange a purchase by wire. You
must then instruct your financial institution to wire funds to: THE GATEWAY
TRUST, C/O STAR BANK, N.A., ABA #042-0000-13, CINCINNATI, OHIO.
You must send the following information with your wire: your name,
your Gateway account number, and the name of the Fund. See Page 7 for
additional information about wire transfers and telephone instructions.
BY AUTOMATIC INVESTMENT PROGRAM
Gateway's Automatic Investment Program is a way to add systematically
to your existing Gateway account. When you use the program, money is
electronically transferred from your bank account into your Gateway account.
This service is available on a monthly or quarterly basis with a minimum of
$100 per transfer. The Automatic Investment Program is free of charge. Please
call Gateway shareholder services at (800) 354-5525 to make arrangements to use
this program.
BY EXCHANGE FROM ANOTHER GATEWAY FUND
To purchase shares by exchanging from another Gateway fund, please call
Gateway shareholder services at (800) 354-5525 for instructions. If your
exchange request is received by 4:00 PM Eastern Time, the exchange will be
based on that day's closing prices for the funds involved in the exchange.
State securities laws may restrict your ability to make exchanges. The Trust
does not charge any fee for exchanges between Gateway funds. Generally, an
exchange between funds is a taxable event. The Trust reserves the right to
temporarily or permanently terminate the exchange privilege for any shareholder
who makes an excessive number of exchanges. You will receive written notice
that the Trust intends to limit your use of the exchange privilege. The Trust
also reserves the right to terminate or modify the exchange privilege or to
refuse an exchange if the exchange would adversely affect any Gateway fund
involved in the exchange.
- --------------------------------------------------------------------------------
CINCINNATI FUND 5
<PAGE> 86
----------------------------HOW TO SELL SHARES-----------------------------
INVESTORS MAY SELL SHARES BY WRITING OR CALLING GATEWAY.
You may withdraw money from your Gateway account at any time by
choosing one of the following redemption options. If your redemption request
is received in good order by 4:00 PM Eastern Time, your redemption will be
based on that day's closing price for the Fund.
Your money will be mailed or wired, depending on the method of
redemption and your instructions. Normally your money will be sent on the
following business day. Payments to shareholders who have purchased shares by
check will not be made until the purchase check has cleared, which could take
up to 15 days.
BY MAIL
Redemption requests made in writing should be sent to: THE GATEWAY
TRUST, SHAREHOLDER SERVICES, P.O. BOX 5211, CINCINNATI, OHIO 45201-5211.
Each redemption request should include a letter of instruction, specify
the number of Fund shares or dollar amount to be redeemed, and should be signed
by all owners of the shares exactly as their names appear on the account. In
certain cases, other supporting legal documents may be required. The
redemption proceeds will be mailed to the address shown on your account.
A signature guarantee is not usually required. However, a signature
guarantee is required under certain circumstances, including redemptions over
$10,000 and those involving payment to persons other than the record owner(s)
of the shares. A signature guarantee will be accepted from banks, brokers,
dealers, municipal securities dealers or brokers, government securities dealers
or brokers, credit unions (if authorized by state law), national securities
exchanges, registered securities associations, clearing agencies, and savings
associations. Notary publics cannot guarantee your signature.
BY TELEPHONE
If telephone exchange and/or redemption instructions are on file, you
may redeem your Fund shares by calling Gateway shareholder services at (800)
354-5525. If you redeem your shares by telephone, the redemption proceeds will
be paid by check to the owner(s) of the shares shown on Gateway's records and
mailed to the address shown on Gateway's records for your account. Redemption
proceeds can be sent by wire if you completed the wire transfer instructions in
your original New Account Application Form or you have sent separate wire
transfer instructions to Gateway. Separate wire transfer instructions must be
signed by all owners of the shares exactly as their names appear on the
account, and the signatures must be guaranteed. The telephone redemption
procedure is not available for IRAs.
SYSTEMATIC WITHDRAWAL PROGRAM
If the value of your account is at least $5,000, you can arrange for
systematic quarterly or monthly withdrawals in the amount of $100 or more.
Please call Gateway shareholder services at (800) 354-5525 to make arrangements
to use this program.
See Page 7 for additional information about redemptions and telephone
instructions.
- --------------------------------------------------------------------------------
6 CINCINNATI FUND
<PAGE> 87
--------------------ADDITIONAL SHAREHOLDER INFORMATION----------------------
If you buy or sell shares of the Fund through a broker, the broker may
charge you additional fees and expenses.
If you buy shares through a wire transfer, The Gateway Trust will not
charge you for the wire. Your financial institution may charge you for this
service or for transfers from your bank account to the Fund through the
Automatic Investment Program. If you redeem shares through a wire transfer,
the Trust's custodian will assess a wire charge of $10. Your institution may
also charge you for receiving a wire transfer of redemption proceeds.
For information about redeeming shares from an IRA, please call Gateway
shareholder services at (800) 354-5525. More detailed information about
transfers to and distributions from an IRA and a general description of some of
the Internal Revenue Service rules governing IRAs are set forth in the SAI.
The Gateway Trust will not be liable for following instructions
received by telephone that it reasonably believes to be genuine. The Trust
will employ reasonable procedures to confirm that telephone instructions are
genuine. All shareholders of the Fund have telephone redemption and exchange
privileges unless the shareholder has specifically declined these privileges.
If you do not wish to have telephone privileges for your account, you must mark
the appropriate section on the New Account Application Form or notify the Trust
in writing. To protect shareholders who have telephone privileges, the Trust
follows certain procedures, including requiring a form of personal
identification before acting upon telephone instructions, making redemption
checks requested by telephone payable only to the owner(s) of the account shown
on the Trust's records, mailing such redemption checks only to the account
address shown on the Trust's records, directing wire redemptions requested by
telephone only to the bank account shown on the Trust's records, providing
written confirmation of any transaction requested by telephone, and normally
tape recording any instructions received by telephone.
The Gateway Trust reserves the right to reject any investment at any
time. The Trust also reserves the right to automatically redeem your
account(s) under certain circumstances. You will receive written notice at
least 60 days prior to the automatic redemption of your account(s) by the
Trust. Your account(s) may be automatically redeemed when the aggregate value
of your account(s) falls below $800 (other than as a result of market action)
unless you purchase additional shares to increase the value of your account(s)
to at least $1,000 before the end of the 60-day period. Your account(s) may be
automatically redeemed if you do not provide a valid U. S. social security
number or taxpayer identification number or other requested documents before
the end of the 60-day period.
Redemption proceeds will be sent to you no later than five business
days after your request is received in good order. The right of redemption may
be suspended in certain circumstances, such as the closing of the New York
Stock Exchange for a period other than weekends or normal holidays.
- --------------------------------------------------------------------------------
CINCINNATI FUND 7
<PAGE> 88
- -------------------------DIVIDENDS AND DISTRIBUTIONS------------------------
FUND SHAREHOLDERS MAY REINVEST THEIR DIVIDENDS AND DISTRIBUTIONS AT NO CHARGE.
Shareholders of the Fund may elect to receive distributions either in
cash or in additional shares of the Fund. If you wish to receive your
distributions in cash, please mark the appropriate box on the New Account
Application Form. Once your account is opened, you may change the way your
distributions are handled by writing or calling Gateway.
The Fund normally declares dividends and net capital gains, if any, at
the end of December.
FUND PRICING WHEN DIVIDENDS ARE DECLARED
The price of the Fund is affected by its declaration of dividends and
capital gains. The price of the Fund, as adjusted for market activity,
generally drops by the amount of the declared dividend and capital gain
distributions. As an example, assume that on December 31, the Fund declares a
dividend in the amount of $0.50 per share. If the Fund's price per share was
$16.50 on December 30, the Fund's price on December 31 would be $16.00. The
decline of $0.50 per share would be the result of the declaration of the $0.50
dividend.
TAX CONSEQUENCES OF BUYING A DIVIDEND
If you buy Fund shares just before the Fund declares a dividend, you
will pay the full price for the shares and then receive a portion of the price
back as a taxable distribution. In the example above, if you bought shares of
the Fund on December 30, you would pay $16.50 per share. On December 31, the
Fund would pay you $0.50 per share as a dividend and your shares would be
worth $16.00 per share. The dividend paid to you would generally be included
in your gross income for tax purposes, whether or not you reinvested the
dividend. For this reason, you should carefully consider the tax consequences
of buying shares in the Fund in late December.
- --------------------------------------------------------------------------------
8 CINCINNATI FUND
<PAGE> 89
- ----------------------PERFORMANCE AND RISK INFORMATION------------------------
GATEWAY HAS BECOME AN INDUSTRY LEADER IN PROVIDING PROSPECTIVE INVESTORS
AND EXISTING SHAREHOLDERS WITH THE MOST COMPLETE INFORMATION
ON ITS NO-LOAD FUNDS.
PERFORMANCE AND RISK INFORMATION
The Fund will provide performance information to its shareholders and
prospective investors. The Fund generally includes total return, cumulative
total return, and average annual total return for a stated period, as well as
information about the growth of a $10,000 investment in the fund, in its
reports and sales literature. The Fund may also provide statistical
information about the risks of investing in the Fund. The risk measurements
used by the Fund include its standard deviation and beta. A more complete
description of the performance and risk measurements used by the Fund is
included in the SAI.
COMPARATIVE PERFORMANCE INFORMATION
The Fund may compare its performance to various indexes, such as the
S&P 500 Index. The Fund may also compare its performance to that of other
mutual funds or categories of mutual funds as reported by independent services,
such as Morningstar, Inc. and Value Line Mutual Fund Survey, or by other
financial publications.
EXPLANATION OF TERMS
TOTAL RETURN is the change in the value of an investment in a fund over
a given period, assuming reinvestment of distributions.
A CUMULATIVE TOTAL RETURN reflects actual performance over a stated
period of time.
An AVERAGE ANNUAL TOTAL RETURN is a rate of return that, if achieved
consistently throughout a given period, would produce a cumulative total return
equal to that actually achieved by the fund over the same period. Average
annual total returns smooth out variations in performance; they are not the
same as actual year-by-year results.
STANDARD DEVIATION is a statistical measure of volatility. It measures
the expected change in the value of a fund or a market index such as the S&P
500 Index. A fund with an expected return of 10% and a standard deviation of
15% would be expected to show returns of -5% to +25% in two out of every three
years. Volatility is often used as a measure of risk. A lower standard
deviation implies lower volatility.
The BETA is a measure of a fund's volatility relative to an appropriate
index. It measures how much the value of a fund fluctuates compared to the
index. As an example, the S&P 500 Index has a beta of 1.0. Any stock mutual
fund with a beta greater than 1.0 is more volatile than the stock market, and
any fund with a beta lower than 1.0 is less volatile than the stock market as
represented by the S&P 500 Index.
THE S&P 500 INDEX is a widely recognized measure of performance for the
stock market. The S&P 500 figures represent the prices of an unmanaged index
of 500 common stocks and assume reinvestment of all dividends paid on the
stocks in the index.
- -------------------------------------------------------------------------------
CINCINNATI FUND 9
<PAGE> 90
- ---------------------ABOUT THE INVESTMENT MANAGER-------------------------
INVESTMENT ADVISER
Gateway Investment Advisers, Inc., an Ohio corporation, acts as the
investment adviser for the Fund. The Adviser has provided investment advisory
services to mutual funds since 1977. The principal officers of the Adviser,
Walter G. Sall and Peter W. Thayer, CFA, each of whom is an officer and trustee
of the Trust, together control the Adviser. As of December 31, 1993, the
Adviser had approximately $550 million in assets under its management, including
approximately $250 million in assets invested in the Gateway funds. J. Patrick
Rogers, CFA, Vice-President of the Adviser, is primarily responsible for the
day-to-day management of the investment portfolio of the Fund. Mr. Rogers has
been employed by the Adviser since 1989.
The Adviser provides the Fund with investment research and advice and
enters buy and sell orders with brokers on its behalf. In effecting portfolio
transactions for the Fund, the Adviser uses its best efforts to obtain the most
favorable price and execution available for the Fund, except to the extent that
it may be permitted to pay higher commissions for brokerage and research
services. In addition, consistent with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., the Adviser may consider
sales of Fund shares by a broker as a factor in the selection of broker-dealers
to execute portfolio transactions for the Fund.
The Fund pays the Adviser a management fee calculated at an annual rate
of 0.5% of the average daily net asset value of the Fund.
The Fund pays all of its ordinary business expenses, other than
advertising and marketing expenses which are paid by the Adviser, plus
extraordinary expenses as determined by the Board of Trustees. Ordinary
business expenses include the management fees of the Adviser, brokerage
commissions, fees paid to the Adviser for providing shareholder services,
expenses incurred in the registration of the Fund shares with federal and state
securities agencies, and the Fund's proportionate share of the collective
general expenses, such as expenses of printing and distributing shareholder
reports, fees paid to the custodian, certain printing and mailing costs,
professional fees, and insurance costs. These expenses are generally
apportioned among the funds of the Trust on the basis of the number of
shareholders in each fund.
The Adviser provides shareholder, transfer, and dividend disbursing
services ("shareholder services") and financial services to the Fund. A
monthly minimum fee of $2,500 is paid by the Fund to the Adviser for said
shareholder services. The Fund also reimburses the Adviser for printing,
mailing, compliance, and processing expenses associated with providing
shareholder services. These processing expenses cannot exceed 0.2% of the
Fund's average net assets. The Fund pays the Adviser a monthly fee of $4,000
for financial services. The Adviser's mailing address is P. O. Box 5211,
Cincinnati, OH 45201-5211.
- -----------------------------------------------------------------------------
10 CINCINNATI FUND
<PAGE> 91
- -----------------------HOW FUND SHARES ARE PRICED-----------------------
The net asset value (closing price) of the Fund ordinarily is
determined as of the close of the New York Stock Exchange, normally 4:00 PM
Eastern Time on each day during which the Exchange is open for trading. Under
unusual circumstances, the net asset value may be determined at other times as
authorized by the Board of Trustees.
Net asset value is determined by deducting the liabilities of the Fund
from the market or fair value of its assets. Portfolio securities are normally
valued at the mean of the closing bid and asked quotations. Securities for
which there are no such quotations, securities in which trading has been
suspended during the day, and all other assets are valued at fair value as
determined in good faith by the Board of Trustees, although the actual
calculations may be made by persons acting pursuant to the direction of the
Trustees.
- ------------------------------------------------------------------------------
CINCINNATI FUND 11
<PAGE> 92
- -----------------------------------TAXES-------------------------------------
TAXES ON DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute to its shareholders substantially all of
its net investment income and net capital gains, as determined in accordance
with appropriate tax regulations.
Each January you will receive a Form 1099-DIV from Gateway. It will
show the amount and Federal income tax treatment of all distributions paid to
you during the year. Distributions of any net investment income and net
realized short-term capital gains are taxable to you as ordinary income,
whether or not you reinvest. Distributions of net long-term capital gains are
taxable as long-term capital gains, whether or not you reinvest and regardless
of how long you held your Fund shares. Redemptions, including exchanges
between Gateway funds, will be reported to you on Form 1099-B.
For corporations, distributions of net investment income from the Fund
may be eligible for the 70% dividends-received deduction.
Contributions, investments and distributions with respect to IRAs are
subject to specific IRS rules. The SAI contains additional information about
these rules.
The tax discussion set forth above and in the SAI is included for
general information only. You must determine the applicability of state and
local taxes to dividends and distributions received on your shares of the Fund
and to proceeds received from redemptions or exchanges of Fund shares.
Prospective investors should consult their own tax advisors concerning the tax
consequences of an investment in the Fund.
- ------------------------------------------------------------------------------
12 CINCINNATI FUND
<PAGE> 93
- -----------------INVESTMENT PRACTICES AND RESTRICTIONS-------------------
CINCINNATI FUND
The investment objective of the Cincinnati Fund is to achieve capital
appreciation through investment in the common stock of companies with an
important presence in the Greater Cincinnati Area ("Cincinnati Companies").
INVESTMENT PRACTICES: The Fund attempts to achieve its objective by
investing in the common stocks of Cincinnati Companies that meet certain
criteria included in a proprietary model developed by the Adviser. These
criteria include level of employment and nature of operations in the Greater
Cincinnati Area. The Adviser has also incorporated certain industry
diversification, liquidity, market capitalization, and listing criteria into
the model. The Adviser uses the proprietary model to select the Fund's
portfolio of stocks and to determine the proportion of the Fund's assets that
are invested in each stock.
To be eligible for inclusion in the Fund's portfolio, a stock currently
must meet the following model criteria: (1) the stock must be issued either by
a company that employs at least fifty persons in the Greater Cincinnati Area or
by a company that maintains its corporate headquarters in the Greater
Cincinnati Area, (2) the stock must be issued by a company with a market
capitalization of $5 million or more, and (3) the stock must be listed on a
national securities exchange, such as the New York Stock Exchange, the American
Stock Exchange or the National Market System of the NASDAQ. The Greater
Cincinnati Area, for purposes of the model, is defined as the Cincinnati and
Hamilton-Middletown Consolidated Metropolitan Statistical Area ("CMSA"). The
CMSA includes Hamilton, Clermont, Warren, and Butler counties in Ohio; Boone,
Campbell, and Kenton counties in Kentucky; and Dearborn county in Indiana.
At the end of each quarter, the Adviser rebalances the portfolio and
makes appropriate adjustments in the portfolio to reflect changes in the
underlying corporate data. In addition, the Adviser may modify the proprietary
model, or the selection criteria incorporated in the model, in response to
market and economic developments. Such modifications could result in changes
to the composition of the Fund's portfolio.
RISK FACTORS
There are risks inherent in all securities investments. Thus, there
can be no assurance that the Fund will be able to achieve its investment
objective. Changes and developments in the economic environment of the Greater
Cincinnati Area may have a disproportionate effect on the Fund's portfolio.
Because the composition of the Fund's portfolio is determined by the model's
criteria, the Adviser generally will not consider other factors, such as
favorable or unfavorable developments regarding a particular Cincinnati Company
or its stock, in managing the portfolio. However, the Adviser intends to sell
any stock held by the Fund if and when the issuer of the stock files a petition
in bankruptcy or commences any other similar proceeding. Such disposition may
occur after a significant decline in the value of such stock.
The portfolio of the Fund contains some small capitalization stocks.
Investments in companies with smaller capitalization are generally more
volatile and may be less liquid than investments in companies with larger
capitalization.
As the Fund has a long-term investment objective, it may not be an
appropriate investment for persons intending to hold Fund shares for less than
six months.
(CONTINUED ON NEXT PAGE)
- ------------------------------------------------------------------------------
CINCINNATI FUND 13
<PAGE> 94
--------------INVESTMENT PRACTICES AND RESTRICTIONS------------------
(CONTINUED)
OTHER INFORMATION
Under normal conditions, the Adviser invests at least 65% of the Fund's
total assets in securities from two sources: a) those issued by companies that
maintain their headquarters in the Greater Cincinnati Area; and, b) those
issued by companies that are headquartered elsewhere who rank among the 25
largest publicly held employers in the Greater Cincinnati Area. The Fund may
hold cash for purposes of liquidity or for temporary defensive purposes. Cash
is normally invested in repurchase agreements. Cash may also be invested in
securities of the U. S. government or any of its agencies, bankers acceptances,
commercial paper or certificates of deposit. For temporary defensive purposes,
the Fund may hold up to 100% of its assets in cash instruments. Under normal
conditions, the Adviser does not intend to invest more than 5% of the Fund's
net assets in any cash instrument other than repurchase agreements.
In a repurchase agreement, the Fund acquires securities suitable for
investments in accordance with its policies and the seller (usually a bank)
agrees at the time of sale to repurchase such securities at an agreed-upon
date, price and interest rate. Investments in repurchase agreements are
subject to the risk that the selling bank may default in its repurchase
obligation. Investments in repurchase agreements are also subject to the risk
that the selling bank may become financially insolvent which could prevent or
delay the Fund's disposition of the collateral held as security for these
transactions. Such repurchase agreements are fully collateralized and the Fund
takes possession of such collateral, thus reducing the risk of default. The
collateral is subject to continuing market fluctuations and its value could be
more or less than the repurchase price.
FUNDAMENTAL POLICIES
The investment objective and investment restrictions of the Fund are
designated as fundamental policies. Such fundamental policies may not be
changed without approval of the holders of a majority of the Fund's outstanding
shares.
The investment practices of the Fund as described above are not
fundamental policies and may be changed without shareholder approval.
INVESTMENT RESTRICTIONS
Certain investment restrictions applicable to the Fund are described
below. The complete text of these restrictions is set forth in the SAI under
the caption "Other Information about Investment Practices and Restrictions."
Additional investment restrictions pertaining to the Fund are set forth in the
SAI under the same caption.
INVESTMENTS IN ONE ISSUER: The Fund may not purchase any security if,
as a result, the Fund would then hold more than 10% of the common stock of the
issuer.
INVESTMENTS IN START-UP COMPANIES: The Fund may not purchase any
security if, as a result, the Fund would then have more than 5% of its total
assets invested in securities of companies less than three years old.
INVESTMENTS IN REPURCHASE AGREEMENTS: The Fund may not invest more
than 5% of its total assets in repurchase agreements with a maturity longer
than seven days.
Although the Fund may invest up to 5% of its total assets in start-up
companies or in repurchase agreements with a maturity longer than seven days,
the Adviser does not intend to invest more than 5% of the Fund's net assets in
either start-up companies or such repurchase agreements.
- ------------------------------------------------------------------------------
14 CINCINNATI FUND
<PAGE> 95
- -------------------GENERAL INFORMATION ABOUT GATEWAY-----------------------
The Gateway Trust is an open-end management investment company
established as an Ohio business trust in 1986. From 1977 to 1986, the Trust's
predecessor operated as a Maryland corporation. The Trust has five series:
the Cincinnati Fund, the Gateway Index Plus Fund, the Gateway Mid Cap Index
Fund (formerly the Gateway Capital Fund), the Gateway Small Cap Index Fund, and
the Matrix Growth Fund (formerly the SWRW Growth Plus Fund). Shares of the
Cincinnati Fund are offered by this prospectus. The Gateway Index Plus Fund,
the Gateway Mid Cap Index Fund and the Small Cap Index Fund are offered by a
separate prospectus. The Matrix Growth Fund is also offered by a separate
prospectus.
The Board of Trustees is generally responsible for management of the
business and affairs of the Trust. The Trustees formulate the general policies
of the Trust, approve contracts and authorize the Trust officers to carry out
the decisions of the Board.
Under the Trust's Second Amended Agreement and Declaration of Trust, no
annual or regular meetings of shareholders are required. As a result, the
Trustees will continue in office until resignation, death or removal. Trustee
vacancies normally are filled by vote of the remaining Trustees. If at any
time less than a majority of the Trustees in office has been elected by the
shareholders, the Trustees must call a shareholder meeting for the purpose of
electing Trustees. In addition, a meeting of shareholders must be called if
shareholders holding at least 10% of the Trust's shares (or shareholders
holding at least 10% of any fund's shares as to any matter affecting only such
fund) file a written request for a meeting.
On any matter submitted to a vote of shareholders, shares are voted by
fund, unless an aggregate vote is required by the Investment Company Act of
1940. Shares are voted by fund with respect to the approval or amendment of
such fund's advisory contract.
Shareholders vote in the aggregate to elect Trustees. As of June 30,
1994, the shareholders of the Index Plus Fund controlled approximately 76% of
the outstanding shares of the Trust. Therefore, in the foreseeable future,
when the shareholders of the Trust vote in the aggregate on a matter such as
the election of Trustees, the shareholders of the Index Plus Fund will be able
to decide the matter. Shareholders do not have cumulative voting rights as to
the election of Trustees. Therefore, the affirmative vote of shareholders
owning more than 50% of the shares of the Trust present at a meeting is
required to elect a Trustee.
- ------------------------------------------------------------------------------
CINCINNATI FUND 15
<PAGE> 96
CINCINNATI FUND
SUPPLEMENT DATED DECEMBER 15, 1995
TO
PROSPECTUS DATED NOVEMBER 1, 1994
===============================================================================
The following material supplements the Prospectus of the Cincinnati
Fund (the "Fund") dated November 1, 1994, and particularly the information
contained under "Investment Adviser" at page 10 of the Prospectus. The Fund is a
series of The Gateway Trust (the "Trust").
Shareholders of the Fund approved a new investment advisory contract
between the Fund and Gateway Investment Advisers, L.P. (the "Adviser") which
became effective December 15, 1995. The Adviser is the successor in interest to
the assets, business and personnel of Gateway Investment Advisers, Inc. ("GIA").
GIA has acted as investment adviser since the formation of the Fund and is now
the general partner of the Adviser with a 76% partnership interest. The sole
limited partner of the Adviser is Alex. Brown Investments Incorporated, an
affiliate of Alex. Brown & Sons Incorporated ("Alex. Brown"), a nationally known
investment banking firm and registered broker/dealer located in Baltimore,
Maryland.
Walter G. Sall, as Chairman and Trustee, and Peter W. Thayer, as
President and Trustee, will maintain those positions with the Trust. The
principal and controlling shareholders of GIA, Mr. Sall and J. Patrick Rogers,
have been appointed Chairman and President of GIA, respectively.
There has been no change in advisory fees paid by the Trust or
management personnel of the Adviser as a result of the approval of the advisory
contract.
The Adviser has entered into an Advisory Referral Agreement with Alex.
Brown under which the Adviser will pay to Alex. Brown an amount equal to
one-half the advisory fees earned by the Adviser relating to shareholders of the
Fund that have been directed to the Adviser by Alex. Brown or any of its
affiliates.
Also effective December 15, 1995, the Adviser became the Shareholder
Servicing, Transfer, Dividend Disbursing and Financial Servicing Agent for the
Trust. This change will not affect the processing of an account or the services
provided for the Fund shareholders.
<PAGE> 97
===============================================================================
THE GATEWAY TRUST
- -------------------------------------------------------------------------------
Registration Statement
Securities Act of 1933 Registration No. 2-59895
Investment Company Act of 1940 Registration No. 811-02773
CINCINNATI FUND
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 15, 1995
This Statement is not a prospectus but should be read in conjunction
with the current Prospectus of the Cincinnati Fund dated November 1, 1994, and
its Supplement thereto dated December 15, 1995. A copy of the Prospectus may be
obtained from the Fund by written or telephone request directed to the Fund at
the address or the telephone number shown below.
- -------------------------------------------------------------------------------
P. O. BOX 5211
CINCINNATI, OHIO 45201-5211
(800) 354-5525
===============================================================================
<PAGE> 98
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION......................................................................................................3
General Information About The Gateway Trust.....................................................................3
INVESTMENT PRACTICES AND RESTRICTIONS.............................................................................4
General.........................................................................................................4
Investment Restrictions.........................................................................................4
Portfolio Turnover..............................................................................................7
PERFORMANCE AND RISK INFORMATION..................................................................................7
Performance Information.........................................................................................7
Total Return Calculations...................................................................................7
Risk Information................................................................................................8
Comparative Indexes.........................................................................................8
Standard Deviation..........................................................................................8
Beta........................................................................................................9
Rankings and Comparative Performance Information................................................................9
SHAREHOLDER SERVICES..............................................................................................9
Open Account....................................................................................................9
Systematic Withdrawal Plan.....................................................................................10
Automatic Investment Plan......................................................................................10
IRAs...........................................................................................................10
Qualified Pension and Profit Sharing Plans.....................................................................13
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................................................14
INVESTMENT ADVISORY AND OTHER SERVICES...........................................................................16
Gateway Investment Advisers, L.P...............................................................................16
Investment Advisory Contracts..................................................................................16
Custodian......................................................................................................19
Shareholder Servicing, Transfer, Dividend Disbursing and Financial Servicing Agent.............................19
BROKERAGE........................................................................................................21
ADDITIONAL TAX MATTERS...........................................................................................22
Federal Tax Matters............................................................................................22
State and Local Tax Aspects....................................................................................22
TRUSTEES AND OFFICERS OF THE TRUST...............................................................................23
COUNSEL..........................................................................................................24
INDEPENDENT PUBLIC ACCOUNTANTS AND FINANCIAL STATEMENTS..........................................................24
PRINCIPAL HOLDERS OF FUND SHARES.................................................................................25
SCHEDULE A.......................................................................................................26
</TABLE>
<PAGE> 99
INTRODUCTION
GENERAL INFORMATION ABOUT THE GATEWAY TRUST
The Gateway Trust (the "Trust") is an Ohio business trust which is
authorized to establish and operate one or more separate series of mutual funds
(herein referred to as "funds" or individually as a "fund"). Each fund has its
own investment policies, restrictions, practices, assets, and liabilities. Each
fund is represented by a separate series of shares of beneficial interest in the
Trust ("Shares"). The Trust's operation is governed by Chapter 1746 of the Ohio
Revised Code, by a Second Amended Agreement and Declaration of Trust dated as of
December 29, 1992, as amended, and by the Trust's By-laws.
At present, there are four series of the Trust:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
NAME OF FUND DATE ORGANIZED FORMER NAMES
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gateway Index Plus Fund 1977 Gateway Option Index Fund until March,
1990; Gateway Option Income Fund until
February, 1988; Gateway Option Income
Fund, Inc. until May, 1986
Gateway Mid Cap Index Fund July 1992 Gateway Capital Fund until December, 1993
Gateway Small Cap Index Fund April 1993 None
Cincinnati Fund November 1994 None
---------------------------------------- ----------------------- ---------------------------------------------
</TABLE>
Gateway Option Income Fund, Inc., the predecessor to the Trust, was
organized in 1977 as a Maryland corporation. It was reorganized to become the
Trust effective as of May 2, 1986, with the Gateway Option Income Fund as its
sole initial fund. As a result of the transaction, shareholders of the
corporation on May 2, 1986, became shareholders of the Option Income Fund.
The Gateway Index Plus Fund, the Gateway Mid Cap Index Fund, and the
Gateway Small Cap Index Fund are offered in one combined prospectus (the
"Combined Prospectus"). The Cincinnati Fund is offered in a separate prospectus
(the "Cincinnati Prospectus"). The Cincinnati Fund has a separate Statement of
Additional Information. The other three funds have a combined Statement of
Additional Information.
Gateway Investment Advisers, L.P. (the "Adviser") acts as the Fund's
investment adviser.
3
-
<PAGE> 100
INVESTMENT PRACTICES AND RESTRICTIONS
GENERAL
The Fund may hold cash for purposes of liquidity or for temporary
defensive purposes. The Fund generally will hold cash reserves for the purpose
of paying expenses and share redemptions and, in addition, cash received from
the sale of the Fund's shares which has not yet been invested. In addition, the
Adviser may determine from time to time that, for temporary defensive purposes,
the Fund should reduce (and in periods of unusual market conditions reduce
substantially or liquidate entirely) its investment in common stock. For
temporary defensive purposes, the Fund may hold up to 100% of its assets in
cash.
Cash is normally invested in repurchase agreements. Cash may also be
invested in securities of the U. S. government or any of its agencies, bankers
acceptances, commercial paper or certificates of deposit (collectively "cash
instruments"). Commercial paper investments will be limited to investment grade
issues rated A-1 or A-2 by Standard & Poor's Corporation or Prime-1 or Prime-2
by Moody's Investors Service, Inc. Certificates of deposit investments will be
limited to obligations of domestic banks with assets of $1 billion or more.
Under normal conditions, the Adviser does not intend to invest more than 5% of
the Fund's net assets in any cash instrument other than repurchase agreements.
INVESTMENT RESTRICTIONS
The Trust has adopted certain fundamental policies with respect to the
Fund that may not be changed without a vote of shareholders of the Fund. Under
these policies, the Fund may not:
1. purchase any security if as a result the Fund (or the funds in
the Trust together) would then hold more than 10% of any class
of securities of an issuer (taking all common stock issues of an
issuer as a single class, all preferred stock issues as a single
class, and all debt issues as a single class) or more than 10%
of the outstanding voting securities of an issuer.
2. purchase any security if as a result the Fund would then have
more than 5% of its total assets (taken at current value)
invested in securities of companies (including predecessors)
less than three years old and in equity securities for which
market quotations are not readily available.
3. purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of
purchase and sales of securities).
4. make short sales of securities or maintain a short position, (a)
unless, at all times when a short position is open, the Fund
owns an equal amount of such securities or securities
convertible into or exchangeable (without payment of any further
consideration) for securities of the same issue as, and equal in
amount to, the securities sold short, and (b) unless not more
than 10% of the Fund's net assets (taken at current value) are
held as collateral for such sales at any one time.
It is the present intention of management to make such sales
only for the purpose of deferring realization of gain or loss
for federal income tax purposes. It is the present
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intention of management that short sales of securities subject
to outstanding options will not be made.
5. borrow money except as a temporary measure for extraordinary or
emergency purposes and then only from banks and only in amounts
not in excess of 5% of the Fund's total assets (except to meet
redemption requests as discussed below), taken at the lower of
cost or market.
It is the present intention of management that the Fund will not
purchase additional portfolio securities at any time when its
borrowing exceeds 5% of its total assets. In order to meet
redemption requests without immediately selling any portfolio
securities, the Fund may borrow an amount up to 25% of the value
of its total assets including the amount borrowed. If, due to
market fluctuations or other reasons, the value of the Fund's
assets falls below 400% of its borrowing, the Fund will reduce
its borrowing which may result in the Fund being required to
sell securities at a time when it may otherwise be
disadvantageous to do so. This borrowing is not for investment
leverage but solely to facilitate management of the portfolio by
enabling the Fund to meet redemption requests where the
liquidation of portfolio securities is deemed to be inconvenient
or disadvantageous. However, the Fund might be deemed to be
engaged in leveraging in that any such borrowing will enable the
Fund to continue to earn money on investments which otherwise
may have been sold in order to meet redemption requests.
6. pledge more than 10% of its total assets, taken at market value.
The deposit in escrow of underlying securities in connection
with the writing of call options is not deemed to be a pledge.
7. purchase or retain securities of any company if officers and
trustees of the Trust or of the Adviser who individually own
more than 1/2 of 1% of the securities of that company together
own beneficially more than 5% of such securities.
8. buy or sell commodities or commodity contracts, or real estate
or interests in real estate, although it may purchase and sell
(a) securities which are secured by real estate, and (b)
securities of companies which invest or deal in real estate.
9. act as underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be
an underwriter under certain provisions of the Federal
securities laws.
10. make investments for the purpose of exercising control or
management.
11. participate on a joint or joint and several basis in any trading
account in securities.
12. purchase any security restricted as to disposition under the
Federal securities laws.
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13. invest in securities of other investment companies, except as
part of a merger, consolidation or other acquisition.
14. invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the common
stocks of companies which invest in or sponsor such programs.
15. make loans, except through the purchase of bonds, debentures,
commercial paper, corporate notes and similar evidences of
indebtedness of a type commonly sold privately to financial
institutions (subject to the limitation in paragraph 12 above),
and except through repurchase agreements.
No more than 5% of the Fund's assets will be invested in
repurchase agreements which have a maturity longer than seven
days. In addition, the Fund will not enter into repurchase
agreements with a securities dealer if such transactions
constitute the purchase of an interest in such dealer under the
Investment Company Act of 1940. The purchase of a portion of an
issue of such securities distributed publicly, whether or not
such purchase is made on the original issuance, is not
considered the making of a loan.
16. purchase any security (other than U. S. government obligations)
if, as a result thereof, less than 75% of the value of the
Fund's total assets is represented by cash and cash items
(including receivables), government securities and other
securities which for purposes of this calculation are limited in
respect of any one issuer to an amount not greater in value than
5% of the value of the Fund's total assets and to not more than
10% of the outstanding voting securities of such issuer.
All of the funds in the Trust taken as a group also must satisfy
this 10% test.
17. concentrate the investments of the Fund in a single industry.
18. write, purchase or sell puts, calls or combinations thereof.
19. buy or sell commodities, commodities futures contracts or
commodities options contracts.
The Trust has no fundamental policy with respect to the issuance of
senior securities by the Fund; however, the Investment Company Act of 1940
prohibits the Trust's issuance of any such securities.
In addition to these fundamental policies, the Fund may not invest more
than 15% of the Fund's net assets in "illiquid assets." Further, the Trust has
specifically undertaken as a condition of state registration to limit the
investment in warrants by the Fund to no more than 5% of the Fund's net assets,
and to further limit to 2% of the Fund's net assets any investment by the Fund
in warrants which are not listed on the New York or American Stock Exchanges.
Similarly, the Trust has undertaken to limit the short sales discussed in
Paragraph 4 above to the lesser of 2% of the value of securities of any one
issuer in which the Fund is short, or 2% of the securities of any class of any
issuer.
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Although the practices described in paragraphs 4, 5 and 6, above, could
involve more than 5% of a Fund's assets, the Adviser has no current intention of
causing the Fund to employ any such practice in the coming year.
PORTFOLIO TURNOVER
Portfolio turnover rate is the percentage computed by taking the lesser
of purchases or sales of portfolio securities for a year and dividing it by the
monthly average of the market values of such securities.
The Adviser estimates that the portfolio turnover rate for the Fund
will generally not exceed 25%.
PERFORMANCE AND RISK INFORMATION
PERFORMANCE INFORMATION
The Fund may quote performance in various ways. All performance
information supplied by the Fund is based upon historical results and is not
intended to indicate future performance. Total returns and other performance
information may be shown numerically or in a table, graph or similar
illustration. The Fund's share prices and total returns fluctuate in response to
market conditions, interest rates and other factors.
TOTAL RETURN CALCULATIONS
Total returns reflect all aspects of a fund's return, including the
effect of reinvesting dividends and capital gains distributions, and any change
in a fund's net asset value per share (NAV) over the period.
Average annual total returns are calculated by determining the average
annual compounded rates of return over one-, five- and ten-year periods that
would equate an initial hypothetical investment to the ending redeemable value
according to the following formula:
P (1 + T)(n) = ERV where: T = Average annual total return
n = Number of years and portion of a year
ERV = Ending redeemable value (of an initial
hypothetical $1,000 investment) at the end of the
period
P = $1,000 (the hypothetical initial
investment)
If a fund has been in existence for less than one, five or ten years,
the time period since the date of the initial public offering will be
substituted for the periods stated.
As a hypothetical example, a cumulative return of 100% growth on a
compounded basis in ten years would produce an average annual total return of
7.18%, which is the annual rate that would equal 100% growth on a compounded
basis in ten years. While average annual total returns are convenient means of
comparing investment alternatives, investors should realize that a fund's
performance is not constant over time, but changes from year to year, and that
average annual total returns represent averaged figures as opposed to the actual
year-to-year performance of the Fund.
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Average annual total return is calculated as required by applicable
regulations promulgated by the Securities and Exchange Commission. In addition
to average annual total returns, the Fund may quote year-by-year total returns
and cumulative total returns reflecting the simple change in value of any
investment over a stated period. Average annual, year-by-year, and cumulative
total returns may be quoted as a percentage or as a dollar amount.
RISK INFORMATION
In evaluating the performance of any investment including the Fund, it
is important to understand the risks involved in the investment. Information
regarding the performance of an investment, while valuable in itself, is more
meaningful when it is related to the level of risk associated with that
investment. Thus, two different mutual funds that produce similar average annual
total returns may present markedly different investment opportunities if the
risk of loss associated with one mutual fund is greater than that of the other
mutual fund.
For example, an investment in a mutual fund that invests in stocks
generally will present greater potential for variation in the share price of the
mutual fund, and hence a greater risk of gain or loss than an investment in a
mutual fund that invests in short-term U. S. government securities. Because the
potential for greater gain typically carries with it a greater degree of risk,
the advisability of an investment in a particular mutual fund for a given
investor will depend not only on historical performance of the fund but also on
the potential for gain and loss associated with that mutual fund.
The Gateway Trust offers four different funds that produce different
total returns and present different risk potentials. The difference in risk
potential can be demonstrated by various statistical concepts. The following
statistical concepts can be used to measure some of the risks associated with an
investment in the Fund.
COMPARATIVE INDEXES
The performance and risk of the Fund may be compared to the performance
and risk of the S&P 500 Index and the Lehman Government/Corporate Bond Index.
These comparative indexes are used because they are the standard benchmarks of
the stock market and bond market respectively.
STANDARD DEVIATION
Standard deviation measures the volatility of the total return of the
Fund. Standard deviation is one method of comparing the total return of a fund
to the average monthly total return of the Fund. In general, a fund that has a
greater standard deviation is a fund that has displayed a greater tendency to
vary from its own average monthly total return. Standard deviation can also be
used to compare the total return of a fund to the total return of an index or
another mutual fund. By comparing the magnitude of the standard deviation of
each investment, an analyst is able to determine the relative volatility of each
investment. An investment with an expected return of 10% and a standard
deviation of 15% would be expected to earn a total return ranging from -5% to
+25% about 68% of the time, a total return ranging from -20% to +40% about 95%
of the time, and a total return ranging from -35% to +55% about 97% of the time.
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BETA
Beta analyzes the market risk of the Fund by showing how responsive the
Fund is to the market as defined by an index. Beta is a comparative measure of
the Fund's volatility in relation to an appropriate index. Generally, higher
betas represent riskier investments. By definition, the beta of the market is
1.00. Thus, a fund with a beta higher than 1.00 is expected to perform better
than the market in up markets and worse than the market in down markets. Beta is
the slope of the "least square line" which compares the Fund with an index.
RANKINGS AND COMPARATIVE PERFORMANCE INFORMATION
The Fund may compare its performance to that of other mutual funds or
categories of mutual funds as reported by independent services, such as
Morningstar, Inc., Lipper Analytical Services, Inc. and Value Line Mutual Fund
Survey, or by other financial publications with circulations of 10,000 readers
or more. Performance comparisons may be expressed as ratings, such as the
proprietary ratings published by Morningstar, Inc., or rankings, such as the
rankings of funds in various categories published by Lipper Analytical Services.
Inc. Performance comparisons may also be expressed as designations (such as a
certain number of "stars") or descriptions (such as "best fund") assigned by
such services or publications.
SHAREHOLDER SERVICES
Gateway Investment Advisers, L.P. serves as the Trust's shareholder
servicing, transfer, dividend disbursing and financial servicing agent (the
"Servicing Agent"). In this capacity, it performs various shareholder services
on behalf of the Trust.
OPEN ACCOUNT
The Fund's regular account for investors who purchase its shares is the
Open Account. The Open Account facilitates regular purchases of Fund shares over
a period of years and provides the option of receiving dividends and
distributions either in cash or in Fund shares. There is no charge for the
automatic reinvestment of dividends and distributions.
The Servicing Agent maintains a record of the investor's purchases,
redemption, and share balance in the investor's open account. Shortly after each
purchase, the Servicing Agent will mail a confirmation to the investor showing
the shares purchased, the exact price paid for the shares and the total number
of shares owned. Share certificates will not be issued to an investor.
Upon opening an account, the investor may elect any of the following
options: (1) reinvestment at net asset value of all distributions, or (2)
payment in cash of all distributions. If no election is made, all distributions
will be reinvested at net asset value. An election may be changed by a letter or
telephone call to the Servicing Agent. The Fund presently bears all expenses of
its Open Accounts but reserves the right upon notice to establish a maintenance
charge in the future.
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SYSTEMATIC WITHDRAWAL PLAN
If the value of an investor's account is at least $5,000, an investor
can request withdrawals on either a monthly or a quarterly basis in the minimum
amount of $100. The Trust makes no recommendation as to the minimum amount that
ought to be periodically withdrawn by an investor. A sufficient number of shares
in the investor's account will be sold periodically (normally one business day
prior to each withdrawal payment date) to meet the requested withdrawal
payments.
If an investor establishes an account in the Systematic Withdrawal
Plan, all dividends and distributions on shares held in the account will be
reinvested in additional shares at net asset value. Since the withdrawal
payments represent the proceeds from sales of Fund shares, there will be a
reduction, and there could even be an eventual depletion, of the amount invested
in the Fund to the extent that withdrawal payments exceed the dividends and
distributions paid and reinvested in shares. Withdrawals under the Systematic
Withdrawal Plan should not, therefore, be considered a yield on investment. An
investor can make arrangements to use the Systematic Withdrawal Plan (or
discontinue use of the Plan) by contacting Shareholder Services at (800)
354-5525.
AUTOMATIC INVESTMENT PLAN
For established accounts, shares of the Fund may be purchased on a
regular monthly or quarterly basis in amounts of $100 or more per purchase.
Shareholder Services can arrange to have such funds transferred automatically
from an investor's checking account to the Trust for purchase of shares. An
investor can make arrangements to use the Automatic Investment Plan (or
discontinue use of the Plan) by contacting Shareholder Services at (800)
354-5525.
IRAS
Investors may purchase shares of the Fund through Individual Retirement
Accounts ("IRAs") which are permitted to invest in shares of a mutual fund. The
Trust itself sponsors a form of IRA which can be adopted by an investor and
which is specifically designed to permit the investor to invest in shares of any
Gateway fund selected by the investor. Alternatively, investors may use the
services of the Adviser to allocate assets of the Gateway-sponsored IRA among
investments in shares of the Gateway funds and certain other investments. The
custodian of such Gateway-sponsored IRAs is Star Bank. Investors can obtain
forms to establish IRAs by calling Shareholder Services at (800) 354-5525.
An IRA is a special program with certain tax benefits that generally
permits an investor to establish and contribute to his or her own retirement
plan. As is briefly discussed below, an investor who has compensation for a
taxable year may make contributions within certain limits to his or her own IRA
(and, in limited situations, an IRA for his or her spouse). Certain of the
investor's contributions to the IRA may be deductible from income in determining
his or her federal income tax for the taxable year of the contributions and not
taxed until distributed from the IRA. Also, certain amounts received from
another IRA may be able to be rolled over or transferred to an IRA and thereby
avoid federal income tax on the amounts rolled over or transferred until
received from the new IRA. In addition, certain amounts distributed from a
tax-qualified employer plan may be
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able to be rolled over directly to an IRA and thereby avoid income tax
withholding on the amounts rolled over. Further, all earnings generated in the
IRA are not taxed until distributed from the IRA.
To explain in more detail, in general, any investor who has
compensation in a taxable year is eligible: (1) to establish and/or make
contributions to an IRA for his or her own benefit for such taxable year (except
for the taxable year in which he or she attains the age of 70-1/2 or any later
taxable year); and (2) to establish and/or make contributions to an IRA for his
or her spouse, provided the spouse either has (or elects to be treated as
having) no compensation for the taxable year and provided the spouse has not
attained the age of 70-1/2 by the close of such taxable year. Such an investor
may contribute for the applicable taxable year up to the lesser of $2,000
($2,250 for spousal IRAs for both the investor and his or her non-earning
spouse, if applicable) or 100% of his or her compensation for the taxable year.
If both the investor and his or her spouse have compensation, each may
contribute up to such limits to separate IRAs.
The amount contributed to an IRA under the above rules is deductible
from income of the investor in determining federal income tax for the applicable
taxable year; except that if the investor (or his or her spouse) is an active
participant in an employer-maintained retirement or profit sharing or similar
type of plan for such taxable year, the ability to deduct the contribution is
phased out if the adjusted gross income, as modified in certain respects for
this purpose ("AGI"), of the investor is above a certain amount. Specifically,
for such an investor filing a joint return with his or her spouse, the deduction
is phased out for AGI between $40,000 and $50,000 (and hence is not available at
all when the AGI on the joint return is above $50,000). When such an investor is
not married, the deduction is phased out for AGI between $25,000 and $35,000
(and hence is not available when the AGI is above $35,000). For an investor who
is married but files a separate tax return, the deduction is phased out for AGI
between $0 and $10,000 (and hence is not available when the AGI is above
$10,000). In determining whether the investor's spouse's active participant
status is taken into consideration and the applicable AGI limits, an investor
and his or her spouse who file separate returns for the applicable tax year and
live apart at all times during such tax year will not be treated as married for
such year.
Additional contributions can be made to an investor's IRA if
contributed by the investor's employer pursuant to a simplified employee pension
plan (an "SEP") maintained by the employer. Currently, the maximum amount able
to be contributed to an investor's IRA through his or her employer's SEP (and
assuming the employer maintains and has maintained no other qualified plans for
the investor) is generally 15% of the investor's compensation from that employer
(determined without regard to the SEP contributions) or $22,500, whichever is
less. Contributions to an investor's IRA under an SEP program generally, if
within the above limits, are not included in the investor's income for federal
income tax purposes.
Further, an investor may at times be able to roll over amounts he or
she receives from another IRA, or from a tax-qualified profit sharing, stock
bonus, pension, or annuity plan of an employer, to an IRA which invests in
Gateway fund shares and be able by such method to defer the paying of taxes on
the part of the distribution rolled over until such amounts are paid from the
new IRA, provided certain conditions are met.
Distributions to an investor from one IRA can be rolled over to another
IRA as a sixty-day rollover. To qualify for sixty-day rollover treatment, an
investor must complete the rollover within sixty days of when the investor
receives the distribution. A sixty-day rollover distribution from an IRA may be
made only once in any
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one-year period. The automatic 20% withholding for federal income tax does not
apply to distribution from an IRA, and you can elect no withholding from that
distribution.
An investor may also make a direct transfer of assets from one IRA to
another by directing the existing IRA custodian or trustee to transfer directly
to a new IRA investing in Gateway fund shares the amount held in that prior IRA,
without directly receiving those funds or being taxed on the transfer. There is
no minimum holding period for a direct transfer of IRA assets from one custodian
or trustee to another. The Adviser has forms, available upon request, that an
investor can use to make direct IRA transfers.
An investor generally may roll over into an IRA any taxable part of a
distribution from a qualified employer plan. Distributions from an employer's
tax-qualified plan can be rolled over to an IRA either as a direct rollover or
as a sixty-day rollover.
A Gateway-sponsored IRA is eligible to receive direct rollovers of
distributions from a qualified employer plan. An investor can make a direct
rollover by instructing the employer's plan to wire the distribution to Star
Bank as custodian for the Gateway-sponsored IRA. The distribution should be
wired to:
The Gateway Trust c/o Star Bank, N.A.
ABA #042-0000-13
Cincinnati, Ohio
Name (insert shareholder name)
Gateway Account No. (insert shareholder account number)
Name of Gateway fund(s) in which you wish to invest
An investor can also make a direct rollover by instructing the
employer's plan to prepare a check for the amount to be rolled over payable to
"Star Bank, N.A., as Custodian of Individual Retirement Account of (insert
shareholder name)," and delivering that check to Gateway. The check can be
delivered in person or mailed to:
The Gateway Trust
Shareholder Services
P. O. Box 5211
Cincinnati, Ohio 45201-5211
An investor can make a sixty-day rollover of a distribution from a
qualified employer plan by instructing the employer's plan to prepare a check
payable to the investor and by endorsing or cashing the check and depositing
some or all of the proceeds in an IRA. The deposit must be delivered in person
or mailed to Gateway at the above address within sixty days of when the investor
receives the distribution. The employer's plan must withhold 20% of the taxable
amount for federal income tax if the investor chooses a sixty-day rollover for
the distribution. The investor can still roll over up to 100% of the eligible
rollover distribution, including an amount equal to the 20% that was withheld.
If the investor chooses to roll over 100%, the investor must find other money
within the sixty day period to replace the 20% withheld. If the investor rolls
over only the 80% that the investor received, the investor will be taxed on the
20% that was withheld.
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Some portions of distributions from other IRAs or from tax-qualified
profit sharing, stock bonus, pension, or annuity plans are not eligible for
regular or direct rollovers. For instance, distributions of nontaxable after-tax
employee contributions or required minimum payments made after an individual
reaches age 70-1/2 cannot be rolled over.
In general, amounts earned in an IRA from any contributions (whether
such contributions are deductible, nondeductible, or rollover contributions) are
not subject to federal income tax until such amounts are distributed to the
owner of the IRA (or, in the case of the owner's death, his or her beneficiary
under the IRA), at which time they are taxed as ordinary income. All
distributions from an IRA are taxable, except for the part of any distribution
deemed (under tax rules) a return of prior nondeductible contributions to the
IRA. Generally, distributions cannot begin without penalty until the owner
reaches age 59-1/2 or is disabled, and must both begin by April 1 of the year
following the year he or she attains age 70-1/2 and be paid in accordance with
tax rules over the life of the IRA owner or the joint lives of the owner and his
or her IRA beneficiary (or the life expectancy of the owner or the joint life
and last survivor expectancy of the owner and the IRA beneficiary). In addition,
certain excise (or penalty) taxes apply under federal law if contributions
exceed applicable limits, if distributions are not made when required, or if the
amount distributed in any taxable year exceeds certain high levels. To make a
withdrawal from a Gateway-sponsored IRA, an investor should contact Shareholder
Services at (800) 354-5525.
The rules for contributing to, investing under, and distributing from
IRAs are complex, and any investor should consult with his or her own tax
advisor if he or she has any questions with respect to IRAs and to determine if
there have been any recent changes to the rules. At the time an IRA is
established, the custodian or trustee of the IRA is required by law to provide a
disclosure statement to the individual setting forth important information
concerning IRAs.
Further information concerning IRAs can be obtained from any district
office of the Internal Revenue Service. In particular, Publication 590 of the
Internal Revenue Service provides general information as to IRAs.
No annual maintenance fees are charged by the Trust to IRAs, SEP-IRAs,
retirement, pension or profit-sharing plans, including 401(k) plans.
QUALIFIED PENSION AND PROFIT SHARING PLANS
Employers with existing retirement, pension or profit sharing plans may
purchase shares of the Fund by completing the New Account Application Form which
accompanies the Prospectus. The possible use, at no additional charge, of the
Systematic Withdrawal Plan provides an optional method for employees to receive
retirement benefits on a regular basis.
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ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Basic information concerning the purchase and redemption of shares is
set forth under the captions "How To Buy Additional Shares" and "How To Sell
Shares" in the Cincinnati Prospectus. Shares of the Fund are purchased and
redeemed at their net asset value as next determined following receipt of the
purchase order or redemption notice. Redemptions under the Systematic Withdrawal
Program and installment distributions from IRAs are effected at the net asset
value next determined after the date designated for the redemption or
distribution. Information as to the method of calculating the net asset value of
shares of the Fund is included in the Cincinnati Prospectus under the caption
"How Fund Shares Are Priced."
Certificates for shares of the Fund will not be issued.
The minimum initial investment is $1,000 and the minimum additional
investment is $100, subject to certain exceptions such as investments by the
Adviser's employees and by participants in SEP programs. The Trust reserves the
right to reject any purchase order of the Fund.
There is no minimum or maximum applicable to redemption of shares of
the Fund. The Trust, however, reserves the right to automatically redeem a
shareholder's account(s) under certain circumstances. The shareholder will
receive written notice prior to the redemption of the account(s). Generally the
Trust will send the shareholder a letter sixty days prior to redeeming the
shareholder's account(s).
The Trust will automatically redeem a shareholder's account(s) in the
Fund when the aggregate value of the shareholder's account(s) (taken at current
value) falls below $800. The shareholder may prevent such redemption by
increasing the value of the account(s) to $1,000 or more within the sixty-day
period. The Trust will not automatically redeem a shareholder's account(s) if
market action caused the aggregate value of the account(s) to fall below $800 or
if shares of the Fund are not available for purchase at the time the aggregate
value of the account(s) falls below $800.
The Trust also will automatically redeem a shareholder's account if the
shareholder does not provide a valid U. S. social security number or taxpayer
identification number or other requested documents such as corporate
resolutions. The shareholder may prevent such redemption by providing the
requested information within the sixty-day period.
The Trust may institute additional mandatory redemption policies as
approved by the Board of Trustees.
The Trust reserves the right to terminate temporarily or permanently
the exchange privilege for any shareholder who makes an excessive number of
exchanges between funds. The shareholder will receive written notice that the
Trust intends to limit the shareholder's use of the exchange privilege.
Generally the Trust limits a shareholder to twelve exchange transactions per
calendar year. Accounts under common ownership or control, including accounts
with the same taxpayer identification number, normally will be counted as one
account for purposes of the exchange limit.
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The Trust also reserves the right to terminate or modify the exchange
privilege or to refuse an exchange if the exchange would adversely affect a
fund.
Signature guarantees are required for all redemptions involving more
than $10,000 (on the date of receipt by the Servicing Agent of all necessary
documents) and for any redemptions, regardless of the amount involved, when the
proceeds are to be paid to someone other than the registered owner(s). These
requirements are not applicable to redemption in the Trust's IRA or SEP-IRA (see
"SHAREHOLDER SERVICES - IRAS"). The signature guarantee requirement may be
waived by the Trust in certain instances. The purpose of signature guarantees is
to prevent fraudulent redemptions which could result in losses to the Trust, the
Servicing Agent or shareholders. A signature guarantee will be accepted from
banks, brokers, dealers, municipal securities dealers or brokers, government
securities dealers or brokers, credit unions (if authorized by state law),
national securities exchanges, registered securities associations, clearing
agencies, and savings associations. Notary publics are unacceptable guarantors.
The signature guarantees must appear either: (a) on the written request for
redemption, (b) on a stock power which should specify the total number of shares
to be redeemed, or (c) on all stock certificates tendered for redemption.
The right of redemption may be suspended or the date of payment
postponed (a) for any periods during which the New York Stock Exchange is closed
(other than for customary weekend and holiday closings), (b) when trading in any
of the markets which the Fund normally utilizes is restricted as determined by
the Securities and Exchange Commission (the "Commission"), (c) if any emergency
exists as defined by the Commission so that disposal of investments or
determination of the Fund's net asset value is not reasonably practicable, or
(d) for such other periods as the Commission by order may permit for protection
of the Trust's shareholders.
Although payment for redeemed shares generally will be made in cash,
under abnormal circumstances the Board of Trustees of the Trust may determine to
make payment in securities owned by the Fund. In such event, the securities will
be selected in such manner as the Board of Trustees deems fair and equitable, in
which case brokerage and other costs may be incurred by such redeeming
shareholders in the sale or disposition of their securities.
The Trust reserves the right to modify or terminate any purchase,
redemption or other shareholder service procedure upon notice to shareholders.
Purchases and redemptions generally may be effected only on days when
the stock exchanges are open for trading. These exchanges are closed on
Saturdays and Sundays and the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and
Christmas.
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INVESTMENT ADVISORY AND OTHER SERVICES
GATEWAY INVESTMENT ADVISERS, L.P.
Effective December 15, 1995, Gateway Investment Advisers, L.P. (the
"Adviser") became the successor to Gateway Investment Advisers, Inc. which was
organized in June 1977. Gateway Investment Advisers, Inc. is the general partner
of the Adviser with a 76% ownership interest, while Alex Brown Investments
Incorporation ("ABI") is the sole limited partner with a 24% ownership interest.
ABI is an affiliate of Alex. Brown & Sons Incorporated, a nationally known
investment management firm and registered broker/dealer located in Baltimore,
Maryland. As of December 15, 1995 Walter G. Sall, Chairman and a Trustee of the
Trust, and J. Patrick Rogers, a co-portfolio manager of the funds of the Trust,
together owned of record and beneficially 99.85% of the outstanding shares of
Gateway Investment Advisers, Inc. and thereby control the Adviser. Mr. Sall is
Chairman and a director of Gateway Investment Advisers, Inc. and Mr. Rogers is
its President and a Director.
INVESTMENT ADVISORY CONTRACTS
The Trust has retained the Adviser under an investment advisory
contract to act as investment manager and in such capacity supervise the
investments of the Fund. The Trust's Board of Trustees and shareholders of the
Fund approved the advisory contract on October 31, 1995 and December 11, 1995,
respectively.
Pursuant to the Fund's advisory contract, the Adviser, at its sole
expense, provides the Fund with (i) investment recommendations regarding such
fund's investments, (ii) office space, telephones, and other office equipment,
and (iii) clerical and secretarial staff and the services, without additional
compensation, of all officers of the Trust. In addition, the Adviser has agreed
to bear (i) advertising and other marketing expenses in connection with the sale
of the shares of the Fund, (ii) expenses of printing and distributing all of the
Fund prospectuses and related documents to prospective stockholders, and (iii)
association membership dues (other than for the Investment Company Institute).
The advisory contract further provides that under certain circumstances the
Adviser may cause the Fund to pay brokerage commissions in order to enable the
Adviser to obtain brokerage and research services for its use in advising the
Fund and the Adviser's other clients, provided that the amount of commission is
determined by the Adviser, in good faith and in the best interests of the Fund,
to be reasonable in relation to the value of the brokerage and research services
provided.
The Fund's advisory contract provides that all expenses not
specifically assumed by the Adviser which may be incurred in the operation of
the Trust and the offering of its shares will be borne by the Trust. Such
expenses will be allocated among the funds in the Trust by direction of the
Board of Trustees, most frequently on the basis of expenses incurred by each
fund, but where that is not practicable on such basis as the Trustees determine
to be appropriate. Expenses to be borne by the Trust include fees and expenses
of trustees not employed by the Adviser; expenses of printing and distributing
all of the Trust's prospectuses to current shareholders of the Trust; expenses
pertaining to registering or qualifying the Trust or its shares under various
federal and state laws, and maintaining and updating such registrations and
qualifications; interest expense, taxes, fees and commissions (including
brokerage commissions) of every kind; expenses related to repurchases and
redemptions of shares; charges and expenses of custodians, transfer agents,
dividend disbursing agents and
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<PAGE> 113
registrars; expenses of valuing shares of each fund; printing and mailing costs
other than those expressly assumed by the Adviser; auditing, accounting and
legal expenses; expenses incurred in connection with the preparation of reports
to shareholders and governmental agencies; expenses of shareholder meetings and
proxy solicitations; insurance expenses; and all "extraordinary expenses" which
may arise, including all losses and liabilities incurred in connection with
litigation proceedings and claims, and the legal obligations of the Trust to
indemnify its officers, trustees and agents with respect thereto. A majority of
the Board of Trustees of the Trust and a majority of the trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940) of any
party to the advisory contracts of the funds, voting separately, shall determine
which expenses shall be characterized as "extraordinary expenses."
In return for the services and facilities furnished by the Adviser, the
Fund pays the Adviser a management fee computed at an annual rate of 0.50% of
the average daily net asset value of the Fund.
If total expenses of the Fund for any fiscal year (including the
Adviser's compensation, but exclusive of taxes, interest, brokerage commissions
and any "extraordinary expenses" determined as described above) exceed 2.0% of
the Fund's average daily net asset value for such year, the advisory contract
requires the Adviser to bear all such excess expenses up to the amount of the
advisory fees. Each month the investment advisory fee is determined and the
Fund's expenses are projected. If the Fund's projected expenses are in excess of
the above-stated expense limitation, the investment advisory fee paid to the
Adviser will be reduced by the amount of the excess expenses, subject to an
annual adjustment; provided, however, that the aggregate annual reduction from
the Adviser to the Fund shall not exceed the aggregate advisory fee paid by the
Fund to the Adviser for such year.
The Fund's advisory contract further provides that in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
duties or obligations thereunder, the Adviser is not liable to the Trust or any
of its shareholders for any act or omission by the Adviser. The advisory
contract contemplates that the Adviser may act as an investment manager or
adviser for others.
The Fund's advisory contract may be amended at any time by the mutual
consent of the parties thereto, provided that such consent on the part of the
Trust shall have been approved by the vote of a majority of the Trust's Board of
Trustees, including the vote cast in person by a majority of the Trustees who
are not "interested persons" (as defined in the Investment Company Act of 1940)
of any party to the advisory contract, and by vote of the shareholders of the
Fund.
The Fund's advisory contract may be terminated, upon sixty-days'
written notice (which notice may be waived), at any time without penalty, (i) by
the Board of Trustees of the Trust, (ii) by the vote of a majority of the
outstanding voting securities of the Fund or (iii) by the Adviser. The advisory
contract terminates automatically in the event of its assignment (as that term
is defined in the Investment Company Act of 1940) by the Adviser.
The Fund's advisory contract provides that it will continue in effect
until the next meeting of shareholders of the Fund, and thereafter until each
successive such meeting, provided their continuance for each renewal year is
specifically approved in advance by the vote of a majority of the outstanding
voting securities of the Fund or by a vote of a majority of the Trust's Board of
Trustees, and in either event by the vote cast in
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<PAGE> 114
person of a majority of the Trustees who are not "interested persons" (as
defined in the Investment Company Act of 1940) of any party to the advisory
contract.
18
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<PAGE> 115
The following table shows the management fees earned by the Adviser for
providing services to the Gateway Index Plus Fund, the Gateway Mid Cap Index
Fund, and the Gateway Small Cap Index Fund. It also shows the amount of the fees
waived by the Adviser in the years ended December 31, 1994, 1993, 1992. The 1992
information shown for the Mid Cap Index Fund is for the three-month period ended
December 31, 1992. The 1993 information shown for the Small Cap Index Fund is
for the period from June 16, to December 31, 1993.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
FEE AND WAIVER INDEX PLUS FUND MID CAP INDEX FUND SMALL CAP INDEX FUND
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1994 Fee Earned $1,273,842 $84,778 $114,449
1994 Fee Waived None $81,284 $ 15,135
------- --------
1994 Fee Paid $1,273,842 $ 3,494 $ 99,314
1993 Fee Earned $1,506,566 $95,395 $ 47,791
1993 Fee Waived 0 (66,914) (16,373)
---------- ------- --------
1993 Fee Paid $1,506,566 $28,481 $ 31,418
1992 Fee Earned $1,053,232 $22,162 N/A
1992 Fee Waived 0 (18,934) N/A
---------- -------
1992 Fee Paid $1,053,232 $ 3,228 N/A
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Prior to January 1, 1993, the Index Plus Fund and the Mid Cap Index
Fund each were obligated to pay the Adviser $10,000 each year to cover the
expenses incurred by the Adviser in providing a treasurer for the Trust. The
$10,000 annual fee paid in 1992 and 1991 by the Index Plus Fund and the $2,500
fee paid in the three-month period ended December 31, 1992 by the Mid Cap Index
Fund are not included in the table. The current advisory contracts for these
Funds do not contain this provision, however, the Adviser provides financial
services to these Funds pursuant to the Shareholder Services Agreement between
the Trust and the Adviser. See "Shareholder Servicing, Transfer, Dividend
Disbursing and Financial Servicing Agent" below.
CUSTODIAN
Star Bank, 425 Walnut Street, Cincinnati, Ohio 45202, acts as custodian
of the Trust's assets (the "Custodian"). The Custodian has no part in
determining the investment policies of any fund or which securities are to be
purchased or sold by any fund.
SHAREHOLDER SERVICING, TRANSFER, DIVIDEND DISBURSING AND FINANCIAL
SERVICING AGENT
The Adviser is the Trust's Shareholder Servicing, Transfer, Dividend
Disbursing and Financial Servicing Agent (the "Servicing Agent"). The Adviser's
mailing address for its activities as Servicing Agent is The Gateway Trust, 400
TechneCenter Drive, Suite 220, Milford, Ohio 45150. As Transfer Agent for the
Trust, the Servicing Agent's general duties include transferring shares,
processing applications for new accounts and depositing the payments for the
purchase of Fund's shares with the Custodian, and notifying the Trust and
Custodian of such deposits. The Servicing Agent opens and maintains a bookshare
account for each shareholder as set forth in the subscription application,
maintains records of each shareholder account, and sends
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<PAGE> 116
confirmation of shares purchased to each shareholder. The Servicing Agent also
receives and processes requests by shareholders for redemption of shares. If the
shareholder request complies with the redemption standards of the Trust, the
Servicing Agent will direct the Custodian to pay the appropriate redemption
price. If the redemption request does not comply with such standards, the
Servicing Agent will promptly notify the shareholder of the reasons for
rejecting the redemption request.
As the Dividend Disbursing Agent for the Trust, the Servicing Agent,
upon notification of the declaration of a dividend or distribution, will
determine the total number of shares issued and outstanding as of the record
date for the dividend or distribution and the amount of cash required to satisfy
such dividend or distribution. The Servicing Agent will prepare and mail to
shareholders dividend checks in the amounts to which they are entitled. In the
case of shareholders participating in the dividend reinvestment plan, the
Servicing Agent will make appropriate credits to their bookshare accounts.
Shareholders will be notified by the Servicing Agent of any dividends or
distributions to which they are entitled, including any amount of additional
shares purchased with their dividends. In addition, the Servicing Agent will
prepare and file with the Internal Revenue Service and with any state, as
directed by the Trust, returns for reporting dividends and distributions paid by
such fund.
The Servicing Agent, as the Shareholder Servicing Agent, will open and
maintain any plan or program for shareholders in accordance with the terms of
such plans or programs (see "SHAREHOLDER SERVICES" herein). With regard to the
systematic withdrawal plans, the Servicing Agent will process such systematic
withdrawal plan orders as are duly executed by shareholders and will direct
appropriate payment to be made by the Custodian to the shareholder. In addition,
the Servicing Agent will process such accumulation plans, group programs and
other plans or programs for investing shares as provided in the Trust's current
prospectuses.
The Fund pays the Servicing Agent a monthly minimum fee of $2,500 for
its services. The Fund also reimburses the Servicing Agent for printing,
mailing, compliance, and processing expenses associated with providing its
services. The processing expenses cannot exceed 0.2% of the Fund's average net
assets. In addition, the Fund pays the Adviser a monthly fee of $4,000 for the
financial services it provides as the Servicing Agent.
During the past three years, the Adviser acted as Servicing Agent for
the Trust pursuant to various shareholder servicing agreements. For the years
ended December 31, 1994, 1993 and 1992, the Adviser earned $685,288, $638,558,
and $321,055, respectively in its capacity as Servicing Agent for the Trust. The
basis for remuneration of the Adviser for the three-year period was (1) a fee
ranging from $1.50 to $1.60 per month for each shareholder account existing for
such month (subject to a $2,500 monthly minimum for each fund), (2)
reimbursement of the Adviser for certain out-of-pocket expenses it incurred in
providing shareholder, transfer, and dividend disbursing services, and (3) a
monthly fee for accounting services. The monthly accounting services fee for
each fund was $4,000 in 1993 and $2,167 for the period from November 1, 1991 to
December 31, 1992. For the remainder of 1991, the monthly accounting services
fee for each fund was $1,000 plus a $15 fee per fund for each day the Adviser
performed daily valuation for the fund.
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<PAGE> 117
BROKERAGE
Transactions on stock exchanges involve the payment of negotiated
brokerage commissions. In the case of securities traded in the over-the-counter
market, there is generally no stated commission but the price usually includes
an undisclosed commission or mark-up.
In effecting portfolio transactions for the Fund, the Adviser uses its
best efforts to obtain the most favorable price and execution available, except
to the extent that it may be permitted to pay higher brokerage commissions for
brokerage and research services as described below. In seeking the most
favorable price and execution, the Adviser, in the Fund's best interests,
considers all relevant factors, including price, the size of the transaction,
the nature of the market for the security, the amount of commission, the timing
of the transaction taking into account market prices and trends, the reputation,
experience and financial stability of the broker-dealer involved, and the
quality of service rendered by the broker-dealer in other transactions.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to seeking best execution and such other
factors as the Trustees may determine, the Adviser may consider sales of shares
of a fund as a factor in the selection of broker-dealers to execute securities
transactions for such fund.
While the Adviser does not intend to limit the placement of orders to
any particular broker or dealer, the Adviser generally gives preference to those
brokers or dealers who are believed to give best execution at the most favorable
prices and who also provide research, statistical or other services to the
Adviser and/or the Trust. Commissions charged by brokers who provide these
services have been higher than commissions charged by those who do not provide
them. Higher commissions are paid only if the Adviser determines that they are
reasonable in relation to the value of the services provided, and it has
reported to the Board of Trustees of the Trust on a periodic basis to that
effect. The availability of such services was taken into account in establishing
the investment advisory fees. Specific research services furnished by brokers
through whom the Trust effects securities transactions may be used by the
Adviser in servicing all of its accounts. Similarly, specific research services
furnished by brokers who execute transactions for other of the Adviser's clients
may be used by the Adviser for the benefit of the Trust.
The advisory contract provides that, subject to such policies as the
Trustees may determine, the Adviser may cause the Fund to pay a broker-dealer
who provides brokerage and research services to the Adviser an amount of
commission for effecting a securities transaction for the Fund in excess of the
amount of commission which another broker-dealer would have charged for
effecting that transaction. As provided in Section 28(e) of the Securities
Exchange Act of 1934, "brokerage and research services" include (1) advice as to
the value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; (2) furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and performance of
accounts; (3) effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement); and (4) services that
provide lawful and appropriate assistance to the Adviser in the performance of
its investment decision-making responsibilities.
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<PAGE> 118
ADDITIONAL TAX MATTERS
The tax discussion set forth below and in the Cincinnati Prospectus is
included for general information only. Prospective investors should consult
their own tax advisers concerning the tax consequences of an investment in the
Fund.
FEDERAL TAX MATTERS
The Fund is treated as a separate association taxable as a corporation.
The Fund intends to meet the requirements of the Internal Revenue Code,
applicable to regulated investment companies so as to qualify for the special
tax treatment afforded to such companies. Under Subchapter M of the Code, a
regulated investment company is not subject to federal income tax on the portion
of its net investment income and net realized capital gains which it distributes
currently to its stockholders, provided that certain distribution requirements
are met, including the requirement that at least 90% of the sum of its net
investment income and net short-term capital gains in any fiscal year is so
distributed. In addition to this distribution requirement, two of the principal
tests which the Fund must meet in each fiscal year in order to qualify as a
regulated investment company are the "90% Test" and the "30% Test." The 90% Test
requires that at least 90% of a fund's gross income must be derived from
dividends, interest and gains from the sale or other disposition of securities,
including gains from options. The 30% Test requires that no more than 30% of a
fund's gross income be derived from the sale or other disposition of securities
held less than three months. The 30% Test limits a fund's ability to deal with
investments held less than three months.
Long-term capital gains distributions (i.e., the excess of any net
long-term capital gains over net short-term capital losses), after utilization
of available capital loss carryforwards, are taxable as long-term capital gains
whether received in cash or additional shares, regardless of how long the
shareholder has held his shares, and are not eligible for the dividends received
deduction for corporations. Distributions of long-term capital gains which are
offset by available loss carryforwards, however, may be taxable as ordinary
income.
Distributions on shares of the Fund received shortly after their
purchase, although substantially in effect a return of capital, are subject to
federal income taxes.
The tax status of distributions made by the Fund during the fiscal year
will be sent to shareholders shortly after the end of such year. Each
prospective investor is advised to consult his own tax adviser. Distributions of
net investment income are taxable as ordinary income subject to allowable
exclusions and deductions. Distributions of capital gains are taxable at either
ordinary or long-term capital gains rates, as appropriate, except that all such
gains are normally taxable as ordinary income to the extent they are offset by
capital loss carryforward.
STATE AND LOCAL TAX ASPECTS
The laws of the several states and local taxing authorities vary with
respect to taxation, and each prospective investor is advised to consult his own
tax adviser as to the status of his shares and distributions in respect of those
shares under state and local tax laws.
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<PAGE> 119
TRUSTEES AND OFFICERS OF THE TRUST
The trustees and officers of the Trust, together with information as to
their positions with the Trust and its predecessor, Gateway Option Income Fund,
Inc. (the "Company") and their principal occupations during at least the past
five years, are listed below.
*Walter Gene Sall, 400 TechneCenter Drive, Suite 220, Milford, Ohio
45150; Chairman and Trustee of the Trust; Chairman of the Adviser; various
senior management positions and offices held with the Trust, the Company and the
Adviser since 1977.
*Peter Whitney Thayer, 400 TechneCenter Drive, Suite 220, Milford, Ohio
45150; President and Trustee of the Trust; President and Treasurer of the
Adviser; various senior management positions and offices held with the Trust,
the Company and the Adviser since 1977.
Stefen F. Brueckner, Community Mutual Insurance Company, 1351 William
Howard Taft Road, Cincinnati, Ohio 45206; Trustee of the Trust Since October
1992; Director, President and Chief Operating Officer, Community Mutual
Insurance Company (health insurer) since 1991; various senior management
positions with Community Mutual Insurance between 1986 and 1991. Prior thereto,
various management positions with Community Life Insurance Company, Columbus,
Ohio. Director of CMIC Holding Company, Community National Assurance Company and
E&E Benefit Plans, Inc.
Kenneth A. Drucker, Sequa Corp., 200 Park Avenue, New York, New York
10166; Director of the Company from January 20, 1984 to May 1986; Trustee of the
Trust since April 1986; Vice President and Treasurer, Sequa Corporation (gas
turbine and industrial equipment) since November 1987. Prior thereto, Senior
Vice-President and Treasurer, JWT Group, Inc. (advertising, public update
relations and market research).
Beverly S. Gordon, 1629 Starling Drive, Sarasota, Florida 34231;
Trustee of the Trust since September 1988; arbitrator, National Association of
Securities Dealers, Inc., since January 1992; Vice President, Marketing and
Communications, Coffee, Sugar and Cocoa Exchange from January 1989 to December
1991; Executive Director, National Institutional Options and Futures Society,
March 1988 to December 1988; prior thereto, Vice President, Institutional
Marketing, Chicago Board Options Exchange.
John F. Lebor, 12233 West End, Lost Tree Village, North Palm Beach,
Florida 33408; Director of the Company from September 1977 to May 1986; Trustee
of the Trust since April 1986. Director of Carlisle Retailers, Inc.
William Harding Schneebeck, 251 Indian Harbor Road, Vero Beach, Florida
32963; Director of the Company from September 1977 to May 1986; Trustee of the
Trust since April 1986; retired, formerly Chairman of Midwestern Fidelity Corp.
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<PAGE> 120
*Paul R. Stewart, 400 TechneCenter Drive, Suite 220, Milford, Ohio
45150; Treasurer of the Trust since October, 1995; Comptroller of the Adviser
since October, 1995; Audit Manager and Senior Manager, Price Waterhouse from
September, 1992 to 1995 and from August 1988 to August 1991; accountant for
Lexmark International from August 1991 to September 1991. Age 30.
Donna M. Squeri, 400 TechneCenter Drive, Suite 220 Milford, Ohio 45150;
Secretary of the Trust since October, 1995; Secretary and General Counsel of the
Adviser since September, 1995; in house counsel of Bartlett & Co. from October,
1984 to September, 1993. Age 36.
*Messrs. Sall, Thayer, Stewart and Ms. Squeri are affiliated persons of
the Trust and the Adviser as defined by the Investment Company Act of 1940.
Messrs. Sall and Thayer are "interested persons" of the Trust as defined by the
Investment Company Act of 1940.
Messrs. Sall, Thayer, Stewart and Ms. Squeri each of whom is employed
by the Adviser, receive no remuneration from the Trust. Each Trustee of the
Trust other than Messrs. Sall and Thayer receives fees as follows: (a) an annual
fee of $3,000, payable in equal quarterly installments for service during each
fiscal quarter, (b) a $500 base fee plus $100 per fund for each regular or
special meeting of the Board of Trustees attended, and (c) $200 per fund ($1,000
per fund for the Chairman) for each Audit and Contract Review Committee meeting
attended. The Trust also reimburses each Trustee for any reasonable and
necessary travel expenses incurred in connection with attendance at such
meetings. In addition, Trustees may receive attendance fees for service on other
committees.
The Trust has no bonus, profit sharing, pension or retirement plans for
its trustees, officers or employees.
COUNSEL
Frost & Jacobs, Cincinnati, Ohio, will pass upon the legality of shares
offered hereby and certain other matters pertaining to the Trust and the funds.
INDEPENDENT PUBLIC ACCOUNTANTS AND FINANCIAL STATEMENTS
Arthur Andersen & Co., SC, 425 Walnut Street, Cincinnati, Ohio 45202,
will serve as independent public accountants of the Trust. Arthur Andersen & Co.
will perform an annual audit of the funds' financial statements, prepares the
funds' tax returns and provides financial, tax and accounting consulting
services as requested.
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PRINCIPAL HOLDERS OF CINCINNATI FUND SHARES
As of December 4, 1995, the Cincinnati Fund had 435,307 of its shares
outstanding, out of an unlimited number of authorized shares. As of such date,
each of the following persons or groups was known by Trust management to be the
record and/or beneficial owner (as defined below) of the approximate amounts of
the Cincinnati Fund's outstanding shares indicated below.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF OWNER NUMBER OF SHARES PERCENT OF CLASS
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Firstcinco 200,000 45.94%
P.O. Box 1118
Cincinnati, Ohio 45201
R. S. Harrison, Trustee 25,000 5.74%
440 Mt. Carmel Road
Cincinnati, Ohio 45244
Trustees and officers of the Trust as a group 27,219 Less than 1%
Adviser Officers & Directors as a group 6,704 1.54%
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
As of December 4, 1995, the Adviser held in a fiduciary capacity 77,799,
(17.87%) of the outstanding shares of the Cincinnati Fund. The Adviser has
investment and voting power over all shares held by it in a fiduciary capacity.
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<PAGE> 122
SCHEDULE A
The beta measurements that may be used in the Cincinnati Prospectus will be
calculated by using MicroSoft Excel spreadsheets and the statistical function
slope available in MicroSoft Excel. The SLOPE function returns the slope of the
linear regression line through data points in known y's and known x's. The slope
is the vertical distance divided by the horizontal distance between any two
points on the line, which is the rate of change along the regression line.
The equation for beta (slope) is shown below.
n[sum symbol]xy - ([sum symbol]y)
Beta = -------------------------------------
n[sum symbol]x(2) - ([sum symbol]x(2)
Where y = the Fund's monthly total returns in the period
x = the benchmark index's monthly total returns in the period
26
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