<PAGE> 1
February 22, 1996
Investors enjoyed a very favorable financial market environment throughout
1995. Declining interest rates and strong corporate profits provided a boon
for stock and bond investors. True to its very low risk profile, the Gateway
Index Plus Fund marched steadily forward, posting a total return of 11.04% for
the year.
As we look into 1996, many of the same conditions exist that drove the
financial markets in 1995, although at a more moderate level. Expectations of
lower interest rates and continued low levels of inflation suggest that the
financial markets may deliver worthwhile returns again in 1996. Gateway's
Index Plus Fund's hedged strategy is well equipped to fulfill its dual
objec-tives of providing competitive returns while reducing the risk factors
that otherwise affect stock investors.
We encourage you to read the co-portfolio managers' report. Then consider the
Index Plus Fund's risk-reduction strategy in light of your own expecta-tions
for 1996. If you are at all uncertain about the future, then the Index Plus
Fund's unique risk/reward relationship may make it your best choice for the
months ahead.
Our managers and staff remain dedicated to delivering competitive returns at
very low levels of risk.
Sincerely,
/s/ Walter G. Sall
Walter G. Sall
Chairman
<PAGE> 2
- -----------------------------------------------
MEMBER OF
===============================================
100% NO-LOAD(TM) MUTUAL FUND COUNCIL
===============================================
[THE GATEWAY TRUST LOGO]
P.O. BOX 5211
CINCINNATI, OH 45201-5211
(800) 354-6339
- -----------------------------------------------
[STATUE OF LIBERTY GRAPHIC]
GATEWAY
INDEX PLUS FUND
===================
ANNUAL REPORT
1995
- -----------------------------------------------
<PAGE> 3
- --------------------------------------------------------------------------------
GATEWAY INDEX PLUS FUND
Highlights at December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
------------------------------------
Past One Three Five Ten Inception Dividends Price
Quarter Year Years Years Years Date Year to Date Per Share
------- ---- ----- ----- ----- ---- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gateway Index Plus 2.35% 11.04% 7.98% 9.29% 10.10% 12/7/77 $0.269 $16.91
S&P 500 6.02 37.58 15.34 16.59 14.83
Lehman Gov't/Corp. Bond 4.66 19.24 8.51 9.80 9.65
U. S. Inflation (CPI) 0.26 2.61 2.68 2.80 3.47
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-------------------------------------
Past One Three Five Ten
Quarter Year Years Years Years
------- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Gateway Index Plus 2.35% 11.04% 25.90% 55.93% 161.63%
S&P 500 6.02 37.58 53.44 115.45 298.76
Lehman Gov't/Corp. Bond 4.66 19.24 27.77 59.62 151.28
U. S. Inflation (CPI) 0.26 2.61 8.25 14.80 40.61
</TABLE>
Performance data represents past performance and 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.
1
<PAGE> 4
- --------------------------------------------------------------------------------
GATEWAY INDEX PLUS FUND
Co-Portfolio Managers' Report
- --------------------------------------------------------------------------------
The objective of the Index Plus Fund is to produce a unique balance between risk
and reward. Our goal over a complete market cycle is to provide investors with a
competitive return at less than one-half the risk of the stock market. In fact,
the Fund's risk profile, as measured by standard deviation, is similar to an
intermediate bond portfolio.
We have been able to achieve this unique risk/reward profile over the long-term
by adhering to an investment philosophy that has been in place at Gateway since
1977. Although our objectives were met in 1995, the Fund did not produce a total
return comparable to the more aggressive funds during such an extraordinary and
explosive year for stocks and bonds.
The Gateway Index Plus Fund's total return for the twelve months ended December
31, 1995, was 11.04%. This compares to 5.72% for 90-day Treasury bills, 19.24%
for the Lehman Government/Corporate Bond Index and 37.58% for the Standard and
Poor's 500 Stock Index.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
GATEWAY INDEX PLUS FUND
1995
- -------------------------------------------------------------------------------
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONTRIBUTION OF STOCKS
Performance of Stocks 9.55% 10.31% 7.31% 5.44%
Dividends Earned 0.71 0.65 0.58 0.59
INTEREST EARNED 0.03 0.06 0.04 0.04
CONTRIBUTIONS OF OPTIONS
Effect of Options: Calls (5.77) (8.23) (4.46) (3.02)
Effect of Options: Puts 0.00 (0.59) (0.93) (0.39)
EFFECT OF FEES
Fund Expenses (0.31) (0.30) (0.29) (0.29)
Brokerage Commissions (0.01) (0.03) (0.04) (0.02)
- -------------------------------------------------------------------------------
TOTAL RETURN 4.20% 1.87% 2.21% 2.35%
- -------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 5
- --------------------------------------------------------------------------------
GATEWAY INDEX PLUS FUND
Co-Portfolio Managers' Report
- --------------------------------------------------------------------------------
The table on page 2 analyzes the different components of the Fund's total return
for each quarter of 1995. We present the same information for each of the
preceding five years below. The interplay between these components (when stocks
are up, call options are down and vice versa) creates our unique low-risk
profile.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
GATEWAY INDEX PLUS FUND
- --------------------------------------------------------------------------------
1990 1991 1992 1993 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONTRIBUTION OF STOCKS
Performance of Stocks (5.74)% 24.18% 2.87% 8.27% (0.19)%
Dividends Earned 3.63 3.25 2.90 2.51 2.80
INTEREST EARNED 0.29 0.33 0.19 0.07 0.03
CONTRIBUTIONS OF OPTIONS
Effect of Options: Calls 8.85 (7.66) 4.24 1.48 4.19
Effect of Options: Puts 4.94 (0.72) (3.58) (3.68) 0.00
EFFECT OF FEES
Fund Expenses (1.33) (1.22) (1.11) (1.11) (1.21)
Brokerage Commissions (0.32) (0.36) (0.36) (0.14) (0.05)
- --------------------------------------------------------------------------------
TOTAL RETURN 10.32% 17.80% 5.15% 7.40% 5.57%
- --------------------------------------------------------------------------------
</TABLE>
STOCKS: The year 1995 witnessed the strongest stock market rally since 1975! The
Index Plus Fund's stock portfolio fully participated in this outstanding rally
by appreciating at least 5% in each quarter. Our large capitalization, blue chip
portfolio of one hundred stocks fully benefited from excellent corporate
earnings growth, a decline in long-term interest rates, and a strong overseas
demand for U. S. goods.
DIVIDENDS EARNED: The dividend yield on our portfolio averaged 2.50% for the
year. This is the lowest yield for a major index for quite some time and is
indicative of the strength of the current rally in stocks.
3
<PAGE> 6
- --------------------------------------------------------------------------------
GATEWAY INDEX PLUS FUND
Co-Portfolio Managers' Report
- --------------------------------------------------------------------------------
INTEREST EARNED: Since our objective is to stay fully invested, we do not
maintain significant cash balances. As such, the Fund earns a minimal amount of
interest.
EFFECT OF CALL OPTIONS: In conjunction with maintaining a fully invested
position in stocks, the Fund always sells index call options. The selling of
these options provides cash flow into the Fund. This annualized cash flow has
fluctuated from a high of 19% in 1988 to a low of 9% in 1993 and 1994. In
exchange for last year's option premium cash flow of approximately 12%, the Fund
sold the upside potential of its stocks. In down, flat, or moderately rising
markets (less than 12% annualized), the call options should add to the Fund's
performance as they did in 1990, 1992, 1993 and 1994. If stock prices rise
rapidly, as they did during 1991 and 1995, the Fund may have to buy back the
call options at prices higher than their original cost. This inverse price
relationship between call options and common stocks produces our lower level of
risk.
EFFECT OF PUT OPTIONS: Put options act like insurance on your home -- they serve
as protection against a sudden decline in the value of an asset. We purchase put
options in the Fund when we believe the probability of a "soft market" has
increased. On May 31, we purchased put options for the first time in two years
and maintained a position in puts for the remainder of 1995. Since a decline did
not occur in the market, the cost of our "protection" was 1.91%.
BROKERAGE COMMISSIONS: The Fund has extremely low turnover because we "index"
the portfolio of stocks. A great benefit of this "buy-and-hold" strategy is low
commission costs.
4
<PAGE> 7
- --------------------------------------------------------------------------------
GATEWAY INDEX PLUS FUND
Co-Portfolio Managers' Report
- --------------------------------------------------------------------------------
FUND EXPENSES: Like all mutual funds, the Fund must incur expenses to conduct
business. These expenses range from investment management fees to custodial
charges to independent accounting fees. Fund expenses in 1995 were 1.19%, which
is in line with our historical expense ratio.
We have included a risk/reward chart on the back of this Annual Report to
illustrate the merits of the Index Plus Fund. As always, we appreciate your
support and confidence and look forward to many rewarding years.
/s/ J. Patrick Rogers
J. Patrick Rogers, CFA
Co-Portfolio Manager
/s/ Peter W. Thayer
Peter W. Thayer, CFA
Co-Portfolio Manager
5
<PAGE> 8
- --------------------------------------------------------------------------------
GATEWAY INDEX PLUS FUND
Portfolio of Investments - December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- --------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES 12.77%
18,000 American Electric Power Co. $ 729,000
50,900 Ameritech 3,003,100
145,800 AT&T Corporation 9,440,550
40,100 Bell Atlantic Corp. 2,681,688
22,000 Entergy Corp. 643,500
62,300 MCI Communications Corp. 1,627,588
39,300 Nynex Corporation 2,122,200
64,300 Southern Co. 1,583,388
20,700 UNICOM Corp. 677,925
-----------
22,508,939
-----------
ENERGY 12.54%
45,600 Amoco Corp. 3,266,100
15,500 Atlantic Richfield Co. 1,716,625
13,600 Baker Hughes, Inc. 331,500
10,100 Coastal Corp. 376,225
114,200 Exxon Corp. 9,150,275
11,000 Halliburton Co. 556,875
36,400 Mobil Corp. 4,067,700
30,700 Occidental Petroleum Corp. 656,213
22,200 Schlumberger Ltd. 1,537,350
9,900 Williams Companies 434,363
-----------
22,093,226
-----------
FINANCE 9.09%
44,800 American Express 1,859,200
19,800 American General Corp. 690,525
43,650 American International Group, Inc. 4,037,625
34,400 BankAmerica Corp. 2,227,400
7,000 CIGNA Corp. 722,750
38,400 Citicorp 2,582,400
15,747 First Chicago NBD Corp. 622,007
7,700 First Fidelity Bancorporation 580,388
7,300 First Interstate Bancorp 996,450
13,100 Great Western Financial Corp. 332,413
10,500 ITT Hartford Group Inc. * 507,938
17,000 Merrill Lynch & Co. 867,000
-----------
16,026,096
-----------
</TABLE>
See accompanying notes to financial statements 6
<PAGE> 9
- --------------------------------------------------------------------------------
GATEWAY INDEX PLUS FUND
- --------------------------------------------------------------------------------
Portfolio of Investments - December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- --------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL CYCLICALS 18.23%
17,200 Aluminum Company of America $ 909,450
10,700 Bethlehem Steel Corporation * 149,800
8,300 Black & Decker Manufacturing Corp. 292,575
31,500 Boeing Company 2,468,813
4,600 Boise Cascade Corp. 159,275
9,300 Brunswick Corp. 223,200
9,300 Champion International 390,600
24,700 Dow Chemical Company 1,735,175
51,000 DuPont E.I. de Nemours 3,563,625
31,400 Eastman Kodak Company 2,103,800
8,000 Fluor Corp. 528,000
6,100 General Dynamics Corp. 360,663
47,000 Hewlett Packard Company 3,936,250
13,300 Homestake Mining Corp. 207,813
52,300 International Business Machines Corp. 4,772,375
10,800 International Flavors & Fragrances, Inc. 518,400
24,600 International Paper 931,725
38,600 Minnesota Mining and Manufacturing 2,557,250
11,100 Monsanto Company 1,359,750
4,400 Polaroid Corp. 208,450
21,000 Rockwell International Corp. 1,110,375
5,400 Teledyne, Inc. 138,375
16,600 Unisys Corp. * 93,375
11,900 United Technologies Corp. 1,129,013
19,600 Weyerhauser Co. 847,700
10,400 Xerox Corp. 1,424,800
-----------
32,120,627
-----------
CONSUMER DURABLES 4.80%
36,700 Chrysler Corporation 2,023,088
97,000 Ford Motor Company 2,800,875
68,700 General Motors Corp. 3,632,513
-----------
8,456,476
-----------
</TABLE>
7 See accompanying notes to financial statements
<PAGE> 10
- --------------------------------------------------------------------------------
GATEWAY INDEX PLUS FUND
Portfolio of Investments - December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- --------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER STAPLES 9.04%
6,000 Avon Products, Inc. $ 497,475
115,900 Coca-Cola Co. 8,605,575
14,100 Colgate Palmolive Company 990,525
35,300 Heinz (H. J.) Co. 1,164,900
72,400 PepsiCo, Inc. 4,045,350
10,100 Ralston Purina Co. 629,988
-----------
15,933,813
-----------
SERVICES 5.77%
9,200 Burlington Northern, Inc. 717,600
14,100 Capital Cities/ABC 1,739,588
4,900 Delta Air Lines, Inc. 361,988
5,400 Federal Express * 398,925
9,900 Harrah's Entertainment, Inc. * 240,075
63,900 McDonald's Corp. 2,883,488
12,700 Norfolk Southern Corp. 1,008,063
47,900 Walt Disney Productions 2,826,100
----------
10,175,827
----------
RETAIL 5.07%
44,300 K-Mart Corp. * 315,638
24,000 May Department Stores Company 1,011,000
37,600 Sears, Roebuck & Company 1,466,400
6,300 Tandy Corp. 261,450
34,500 The Limited, Inc. 595,125
26,700 Toys R Us * 580,725
211,200 Wal-Mart Stores, Inc. 4,699,200
----------
8,929,538
----------
HEALTH 10.74%
26,700 Baxter International 1,118,063
46,600 Bristol-Myers Squibb Company 4,001,761
59,300 Johnson & Johnson 5,077,563
7,400 Mallinckrodt Group, Inc. 269,175
113,700 Merck & Company 7,461,563
25,665 Pharmacia & Upjohn 994,519
-----------
18,922,644
-----------
</TABLE>
See accompanying notes to financial statements 8
<PAGE> 11
- --------------------------------------------------------------------------------
GATEWAY INDEX PLUS FUND
Portfolio of Investments - December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- --------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY 12.55%
20,900 AMP, Inc. $ 802,038
4,400 Ceridian Corporation * 181,500
5,400 Computer Sciences Corp. * 379,350
14,200 Digital Equipment Corp. * 908,800
155,700 General Electric Company 11,210,400
3,800 Harris Corp. 207,575
12,300 Honeywell, Inc. 598,088
75,700 Intel Corporation 4,295,975
11,900 National Semiconductor Corp. * 264,775
24,500 Northern Telecom Ltd. 1,053,500
23,600 Raytheon Company 1,115,100
3,200 Tekronix, Inc. 157,200
18,200 Texas Instruments, Inc. 937,300
------------
22,111,601
------------
TOTAL COMMON STOCKS 100.60% 177,278,787
------------
(cost $126,956,161)
</TABLE>
9 See accompanying notes to financial statements
<PAGE> 12
- --------------------------------------------------------------------------------
GATEWAY INDEX PLUS FUND
Portfolio of Investments - December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Contracts Value
- -------------------------------------------------------------------------------------------
<S> <C> <C>
PUT OPTIONS ON THE STANDARD & POOR'S 100 STOCK INDEX
750 expiring January 19, 1996 at 540 $ 44,550
275 expiring January 19, 1996 at 530 11,172
500 expiring February 16, 1996 at 530 54,700
------------
TOTAL PUT OPTIONS OUTSTANDING 0.06% 110,422
(cost $537,213)
REPURCHASE AGREEMENT 2.36%
5.3% repurchase agreement dated December 29, 1995 with Star
Bank, N.A., due January 2, 1996 (repurchase proceeds
$4,156,446), collateralized by $4,380,000 6% GNMA Pool
#8974, maturity May 20, 2022
(market value $4,486,763) 4,154,000
------------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENT 103.02% 181,543,209
------------
CALL OPTIONS ON THE STANDARD & POOR'S 100 STOCK INDEX **
(250) expiring January 19, 1996 at 550 (931,250)
(738) expiring January 19, 1996 at 560 (2,075,623)
(194) expiring January 19, 1996 at 565 (452,263)
(245) expiring January 19, 1996 at 570 (462,438)
(309) expiring January 19, 1996 at 575 (448,050)
(170) expiring January 19, 1996 at 580 (179,563)
(193) expiring February 16, 1996 at 570 (429,425)
(580) expiring February 16, 1996 at 580 (855,500)
(365) expiring February 16, 1996 at 585 (415,188)
------------
TOTAL CALL OPTIONS OUTSTANDING (3.55%) (6,249,300)
(premiums received $5,616,247)
OTHER ASSETS AND LIABILITIES, NET 0.53% 925,743
------------
NET ASSETS 100% $176,219,652
============
<FN>
* Denotes a non-income producing security.
** The aggregate value of investments that covers
outstanding call options is $177,278,787.
</TABLE>
See accompanying notes to financial statements 10
<PAGE> 13
- --------------------------------------------------------------------------------
GATEWAY INDEX PLUS FUND
Statement of Assets and Liabilities - December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Common stocks, at value (original cost $126,956,161) $177,278,787
Put options, at value (original cost $537,213) 110,422
Repurchase agreement 4,154,000
Receivable for investments sold 790,571
Dividends receivable 369,344
Receivable for fund shares sold 43,850
Cash 682
Other assets 31,376
------------
182,779,032
------------
LIABILITIES:
Call options outstanding, at value
(premiums received $5,616,247) 6,249,300
Payable for fund shares redeemed 164,119
Dividends payable to shareholders 52,277
Payable to affiliate 17,153
Other accrued expenses and liabilities 76,531
------------
6,559,380
------------
NET ASSETS $176,219,652
============
NET ASSETS CONSIST OF:
Paid-in capital applicable to 10,422,971 shares outstanding
(unlimited number of shares authorized, no par value) $151,488,652
Accumulated realized loss, net (24,531,782)
Unrealized appreciation, net 49,262,782
------------
$176,219,652
============
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $ 16.91
============
</TABLE>
11 See accompanying notes to financial statements
<PAGE> 14
- --------------------------------------------------------------------------------
GATEWAY INDEX PLUS FUND
Statement of Operations - For the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income $ 4,388,712
Interest income 321,240
------------
4,709,952
------------
EXPENSES:
Investment advisory and management fees 1,246,576
Transfer agent and accounting fees 396,964
Reports to shareholders 175,000
Professional fees 90,242
Trustees' fees 31,663
Registration fees 24,487
Custodian fees 16,792
Other expenses 101,852
------------
2,083,576
------------
NET INVESTMENT INCOME 2,626,376
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on investments:
Securities 13,607,602
Call options expired and closed (34,440,957)
Put options expired and closed (2,292,863)
------------
Net realized loss on investments (23,126,218)
------------
Change in unrealized appreciation (depreciation) of investments:
Securities 41,052,518
Call options (1,996,631)
Put options (426,791)
------------
Change in net unrealized appreciation (depreciation) of investments 38,629,096
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 15,502,878
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 18,129,254
============
</TABLE>
See accompanying notes to financial statements 12
<PAGE> 15
- --------------------------------------------------------------------------------
GATEWAY INDEX PLUS FUND
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
------------- --------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 2,626,376 $ 2,757,888
Net realized gain (loss) on investments (23,126,218) 9,434,982
Change in unrealized appreciation (depreciation) of investments 38,629,096 (2,993,130)
------------ ------------
Net increase in net assets resulting from operations 18,129,254 9,199,740
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (2,626,376) (2,880,615)
From net realized gain on investments -- (8,568,083)
In excess of realized gains on investments (249,721) (1,155,843)
------------ ------------
Decrease in net assets from dividends and distributions (2,876,097) (12,604,541)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 38,274,968 42,407,019
Net asset value of shares issued in reinvestment of
dividends and distributions 2,637,064 11,563,076
Payments for shares redeemed (44,596,352) (93,090,250)
------------ ------------
Net decrease in net assets from fund share transactions (3,684,320) (39,120,155)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS 11,568,837 (42,524,956)
NET ASSETS:
Beginning of period 164,650,815 207,175,771
------------ ------------
End of period $176,219,652 $164,650,815
============ ============
FUND SHARE TRANSACTIONS:
Shares sold 2,357,484 2,665,993
Shares issued in reinvestment of dividends and distributions 160,498 745,445
Less shares redeemed (2,733,507) (5,841,163)
------------ -------------
NET DECREASE IN SHARES OUTSTANDING (215,525) (2,429,725)
============ =============
</TABLE>
13 See accompanying notes to financial statements
<PAGE> 16
- --------------------------------------------------------------------------------
GATEWAY INDEX PLUS FUND
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1995 (1) 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.48 $ 15.85 $ 15.51 $ 15.24 $ 13.64
------- ------- ------- ------- -------
Net investment income 0.24 0.26 0.26 0.27 0.31
Net gains on securities 1.46 0.61 0.88 0.51 2.10
------- ------- ------- ------- -------
Total from investment operations 1.70 0.87 1.14 0.78 2.41
------- ------- ------- ------- -------
Dividends from net investment income (0.24) (0.27) (0.26) (0.28) (0.30)
Distributions from capital gains (0.00) (0.86) (0.47) (0.23) (0.51)
Distributions in excess of realized capital gains (0.03) (0.11) (0.07) 0.00 0.00
------- ------- ------- ------- -------
Total distributions (0.27) (1.24) (0.80) (0.51) (0.81)
------- ------- ------- ------- -------
Net asset value, end of period $ 16.91 $ 15.48 $ 15.85 $ 15.51 $ 15.24
======= ======= ======= ======= =======
TOTAL RETURN 11.04% 5.57% 7.40% 5.15% 17.80%
Net assets, end of period (millions) $176.22 $164.65 $207.18 $212.95 $ 81.37
Ratio of expenses to average net assets 1.19% 1.21% 1.11% 1.11% 1.22%
Ratio of net investment income to average net 1.51% 1.54% 1.58% 1.96% 2.17%
assets
Portfolio turnover rate 5% 4% 17% 15% 31%
<FN>
(1) On December 15, 1995, Gateway Investment Advisers, L.P. became investment
adviser of the Fund.
</TABLE>
See accompanying notes to financial statements 14
<PAGE> 17
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Gateway Trust (the Trust) is a family of four no-load diversified mutual
funds. The financial statements of Gateway Index Plus Fund (Index or the Fund)
are included in this report. Gateway Mid Cap Index Fund, Gateway Small Cap Index
Fund and the Cincinnati Fund are included in separate annual reports. The Trust
is registered under the Investment Company Act of 1940.
The following is a summary of the Fund's significant accounting policies.
INVESTMENTS VALUATION - Index normally values common stocks traded on national
exchanges or markets at the last sale price on each trading day. Option
contracts (both purchased and written) are normally valued at the average of the
closing bid and asked quotations. Other securities (including over-the-counter
written call options) for which market quotations are not readily available are
valued at fair value as determined in good faith under procedures adopted by the
board of trustees.
INVESTMENT TRANSACTIONS, INVESTMENT INCOME, AND EXPENSES - Investment
transactions are recorded on the trade date. Dividend income is recorded on the
ex-dividend date, and interest income is accrued daily. Capital gains and losses
are calculated on an identified cost basis. Expenses that cannot be directly
associated with a specific Trust fund are allocated under policies set by the
board of trustees.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS TO SHAREHOLDERS - Dividends from net
investment income are recorded on the ex-dividend date and are declared and paid
quarterly. Net realized capital gains, if any, are distributed to shareholders
in December.
FEDERAL INCOME TAXES - The Fund intends to comply with the provisions of
Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and distribute substantially all of its taxable income to
shareholders. Based on this policy, the Fund makes no provision for income
taxes. The cost of investments is the same for financial reporting and tax
purposes. Tax regulations require the Fund to assume that open option contracts
are closed each year end and include the resulting calculated capital gain or
loss in the determination of federal taxable income. The Fund has a net capital
loss carryforward of $25,549,652 that expires in 2003.
REPURCHASE AGREEMENTS - The Fund requires the custodian to hold sufficient
collateral to secure repurchase agreements. To reduce the chance of loss in its
repurchase transactions, the Fund enters into repurchase agreements only with
banks that have more than $1 billion in assets and are creditworthy in the
judgment of Gateway Investment Advisers, L.P. (the Adviser).
2. TRANSACTIONS WITH AFFILIATES
Gateway Investment Advisers, Inc. (GIA) was the investment adviser of the Fund
prior to December 15, 1995. On December 15, 1995, the advisory contract between
the Fund and GIA terminated, and a new contract was entered into with the
Adviser. There were no changes in the advisory fee, or the computation thereof,
as a result of the new contract. Index pays the Adviser a monthly management fee
computed at an annual rate of 0.90% of the first $50 million of the average
daily net assets of the Fund, 0.70% of the next $50 million and 0.60% of all
such assets over $100 million.
15
<PAGE> 18
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
- --------------------------------------------------------------------------------
If total expenses for any fiscal year (excluding taxes, interest, brokerage
commissions and expenses of an extraordinary nature) exceed 1.50% of the average
daily net assets, the Adviser has agreed to reduce its fee as necessary to limit
the Fund's expenses to that level.
The Adviser maintains the Fund's accounting records for a monthly fee of $4,000.
The Adviser also provides shareholder servicing, transfer, and dividend
disbursing agent services for the Trust. The Fund reimburses the Adviser for the
cost to provide these services, subject to a minimum monthly fee of $2,500 and a
limitation of 0.20% of average daily net assets.
Each trustee of the Trust who is not affiliated with the Adviser receives an
annual retainer of $3,000, a $500 base fee plus $100 per fund for each meeting
attended, and $200 per fund ($1,000 per fund for the committee chairman) for
each committee meeting attended. The annual retainer and base fee are allocated
among the funds based on the number of shareholders in each fund.
At December 31, 1995, the Adviser controlled, but did not own, 8.1% of the
outstanding shares of the Fund.
3. SECURITIES TRANSACTIONS
For the year ended December 31, 1995, purchases of investment securities
(excluding short-term investments) totaled $8,340,960 and proceeds from sales
totaled $48,346,076.
The Fund may write (sell) call options on stock indices for cash (that is, "the
option premium") to enhance earnings on the portfolio securities. However, using
these contracts limits the opportunity to participate in appreciation of the
underlying portfolio beyond certain upper limits set by the contracts. The Fund
may also buy put options on stock indices. The purchase of put options involves
the risk of loss of all or part of the cash paid for the put options. The
liability recorded upon receipt of written option premiums increases to offset
rises and decreases to offset declines in the market value of the hedged
portfolio. Similarly, the value of purchased puts increases to offset declines
and decreases to offset rises in portfolio value. For the year ended December
31, 1995, transactions in written options were as follows:
<TABLE>
<CAPTION>
Number of Contracts Premiums
<S> <C> <C>
Outstanding at December 31, 1994 3,790 $ 3,245,786
Options written 14,053 19,605,716
Options expired (1,310) (1,085,771)
Options exercised (13,489) (16,149,484)
------- ------------
Outstanding at December 31, 1995 3,044 $ 5,616,247
======= ============
</TABLE>
4. UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS
Gross unrealized appreciation of common stock totaled $53,309,865 and
depreciation totaled ($2,987,239) at December 31, 1995, based on the cost of
investments.
16
<PAGE> 19
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of the Gateway Index Plus Fund of The
Gateway Trust:
We have audited the accompanying statement of assets and liabilities of the
Gateway Index Plus Fund of THE GATEWAY TRUST (an Ohio business trust), including
the portfolio of investments, as of December 31, 1995, and the related statement
of operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Gateway Index Plus Fund of The Gateway Trust as of December 31, 1995, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for the five years in the period then ended, in conformity with generally
accepted accounting principles.
Cincinnati, Ohio Arthur Andersen LLP
January 19, 1996
17
<PAGE> 20
RISK/REWARD CHARTS
<TABLE>
<S> <C> <C>
Index Plus Fund
12/31/85 - 12/31/95
- -------------------
Risk Return
US T-bills (30 day) 0.48% 5.42%
Gateway Index Plus Fund 7.91% 10.10%
S&P 500 Stock Index 14.99% 14.83%
</TABLE>
The above chart shows that, in general, more risk must be taken to earn higher
total returns. The chart shows 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 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. If 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.
<PAGE> 21
- --------------------------------------------------------------------------------
THE GATEWAY TRUST
- --------------------------------------------------------------------------------
Investment Adviser:
Gateway Investment Advisers, L.P.
Shareholder Servicing:
Gateway Investment Advisers, L.P.
Auditors:
Arthur Andersen LLP
Cincinnati, OH
Custodian:
Star Bank, N.A.
Cincinnati, OH
Trustees:
Stefen F. Brueckner
Kenneth A. Drucker
Beverly S. Gordon
John F. Lebor
Walter G. Sall
William H. Schneebeck
Peter W. Thayer
18
<PAGE> 22
February 26, 1996
Gateway's Mid Cap Index Fund and Small Cap Index Fund had their best year ever
in 1995 with returns characteristic of the respective market sectors that each
represents.
These two sub-sectors have traditionally grown faster than the broad market
averages for large capitalization stocks. During the last two years, however,
these two groups of smaller companies have not fully participated in the rally
that has dramatically advanced large multinational corporations.
Typically, smaller companies do not have the international reach of their
larger brethren. What they do have is higher domestic growth rates as well as
less exposure to foreign exchange risks. Also, if history is our guide,
smaller companies often outperform (relative to larger companies) as economic
expansions mature. New technologies and new business ideas are nurtured in
these sectors. Investors with confidence in the future may be well served by
the ability of these funds to deliver the growth that is characteristic of
their sectors.
We invite you to read the co-portfolio managers' report and to weigh it against
your own expectations for 1996. After two years of lower growth relative to
large capitalization stocks, we believe some catch up may be inevitable.
Gateway's two most aggressive funds, the Mid Cap Index Fund and Small Cap Index
Fund, are designed to generally benefit from any advance that prevails for
smaller companies. While smaller capitalization stocks aren't always better,
there are times when they can be truly rewarding. A broadening of market focus
in 1996 could make the year truly memorable for small and middle capitalization
investors.
Sincerely,
/s/ Walter G. Sall
Walter G. Sall
Chairman
<PAGE> 23
[STATUE OF LIBERTY GRAPHIC]
GATEWAY
MID CAP INDEX FUND
AND
SMALL CAP INDEX FUND
ANNUAL REPORT 1995
<PAGE> 24
- --------------------------------------------------------------------------------
GATEWAY MID CAP INDEX AND SMALL CAP INDEX FUNDS
Highlights at December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
----------------------------------
Past One Three Five Ten Inception Price
Quarter Year Years Years Years Date Per Share
------- ---- ----- ----- ----- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Gateway Mid Cap Index 0.25% 25.68% 7.84% n/a n/a 9/30/92 $11.61
Gateway Small Cap Index 0.69 21.81 n/a n/a n/a 6/16/93 $11.05
S&P MidCap 400 Index 1.43 30.95 12.89 n/a n/a
S&P 500 Stock Index 6.02 37.58 15.34 16.59 14.83
Lehman Gov't/Corp. Bond 4.66 19.24 8.51 9.80 9.65
U. S. Inflation (CPI) 0.26 2.61 2.68 2.80 3.47
Wilshire 250 Index 1.08 26.58 n/a n/a n/a
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-------------------------------------
Past One Three Five Ten
Quarter Year Years Years Years
------- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Gateway Mid Cap Index 0.25% 25.68% 25.42 n/a n/a
Gateway Small Cap Index 0.69 21.81 n/a n/a n/a
S&P MidCap 400 Index 1.43 30.95 43.87 n/a n/a
S&P 500 Stock Index 6.02 37.58 53.44 115.45 298.76
Lehman Gov't/Corp. Bond 4.66 19.24 27.77 59.62 151.28
U. S. Inflation (CPI) 0.26 2.61 8.25 14.80 40.61
Wilshire 250 Index 1.08 26.58 n/a n/a n/a
</TABLE>
Performance data represents past performance and 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.
1
<PAGE> 25
- --------------------------------------------------------------------------------
GATEWAY MID CAP INDEX FUND
Co-Portfolio Managers' Report
- --------------------------------------------------------------------------------
The Gateway Mid Cap Index Fund and Small Cap Index Fund produced their best-ever
calendar year returns during 1995, 25.68% and 21.81%, respectively. On December
29, 1995, the Mid Cap Index Fund paid a $0.06 per share income dividend and a
$0.37 per share capital gain distribution; the Small Cap Index Fund paid a
$0.245 per share income dividend and $0.435 per share capital gain distribution.
Average annual returns since inception for the Mid Cap Index Fund and the Small
Cap Index Fund are 7.45% and 8.12%, respectively.
The year 1995 was one of the greatest years ever for stock market performance.
Large capitalization stocks, as measured by the Standard and Poor's 500 Stock
Index, advanced 37.58%. This is only the eighth year since 1926 that the market
has earned greater than 35%. These large, multinational companies benefited from
excellent corporate earnings growth, a decline in long-term interest rates, and
a strong overseas demand for U. S. goods.
The Gateway Mid Cap Index Fund invests in the same stocks and weightings
represented in the Standard and Poor's MidCap 400 Index. This well diversified
portfolio of 400 stocks has a range of market capitalization generally between
$500 million to $5 billion. As the table on page 3 shows, the stock component of
the Mid Cap Index Fund posted terrific gains during the first three quarters of
1995. Like middle capitalization stocks, the Fund produced a relatively modest
gain in the fourth quarter.
With the market advancing so quickly during 1995, our proprietary computer model
was sending cautionary signals for the better part of the year. As such, we
began purchasing put options in the Fund as a means of lowering risk. The table
shows the cost of that insurance for each quarter under the subheading "Effect
of Options: Puts."
The Gateway Small Cap Index Fund invests in the 250 stocks represented in the
Wilshire Small Cap Index. This portfolio is broadly based across twenty-two
industry groups with a median market capitalization of $675 million. The Small
Cap Index Fund had strong performance for each of the first three quarters of
1995 before settling down in the fourth quarter as outlined in the table on page
13. Also, similar to the Mid Cap Index Fund, we purchased put options in the
Fund to lower the risk of owning stocks.
As we head into 1996, the financial news hitting Wall Street appears to be
favorable; interest rates are declining, inflation remains in check, and
corporate earnings are growing at a more moderate rate. We are concerned,
however, that much of this good news has already been reflected in the market.
History certainly suggests that 1996 will not match 1995's spectacular gains. A
bright spot for the Mid Cap Index and Small Cap Index Funds is the expectation
that these smaller capitalization segments of the market will "catch up" to the
larger blue chip stocks during 1996.
As always, we appreciate your continued support and look forward to serving you
in the years to come.
/s/ J. Patrick Rogers
J. Patrick Rogers, CFA
Co-Portfolio Manager
/s/ Peter W. Thayer
Peter W. Thayer, CFA
Co-Portfolio Manager
2
<PAGE> 26
- --------------------------------------------------------------------------------
GATEWAY MID CAP INDEX FUND
Co-Portfolio Managers' Overview
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------------------------------------------
TOP TEN HOLDINGS
GATEWAY MID CAP INDEX FUND
AS OF DECEMBER 31, 1995
-------------------------------------------------------
<S> <C>
Bay Networks, Inc. 1.23%
Worldcom Inc. 1.06%
Aon Corporation 0.87%
Chiron Corporation 0.79%
Fifth Third Bancorp 0.77%
Adobe Systems, Inc. 0.76%
First Tennessee National Corp. 0.74%
Frontier Corp. 0.73%
Hospitality Franchise Systems 0.72%
Parametric Technology Corporation 0.70%
-------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
GATEWAY MID CAP INDEX FUND
1995
- --------------------------------------------------------------------------------
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONTRIBUTION OF STOCKS
Performance of Stocks 7.14% 8.52% 8.65% 0.63%
Dividends Earned 0.53 0.46 0.48 0.40
INTEREST EARNED 0.01 0.03 0.06 0.09
CONTRIBUTIONS OF OPTIONS
Effect of Options: Calls 0.28 0.00 0.00 0.00
Effect of Options: Puts (0.33) (1.14) (0.40) (0.33)
EFFECT OF FEES
Fund Expenses (0.50) (0.49) (0.48) (0.51)
Brokerage Commissions (0.07) (0.02) (0.01) (0.03)
- --------------------------------------------------------------------------------
TOTAL RETURN 7.72% 7.36% 8.30% 0.25%
- --------------------------------------------------------------------------------
</TABLE>
RISK/REWARD CHART
-----------------
SINCE INCEPTION
9/30/92 TO 12/31/95
Mid Cap Index Fund
9/30/92 - 12/31/95
<TABLE>
<CAPTION>
Risk Return
<S> <C> <C>
US T-bills (30 day) 0.31% 3.92%
Mid Cap Index Fund 7.92% 7.45%
S&P 500 7.91% 15.75%
</TABLE>
The above chart shows that, in general, more risk must be taken to earn higher
total returns. The chart shows 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
Mid Cap Index Fund. The line connecting Treasury bills and the S&P 500 Index
shows all the possible outcomes if an investment had been allocated between
these two choices in varying positions. When the Mid Cap Index 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. If the point appears below the line, it shows the
reverse. The succeeding years may be quite different in terms of reward for all
three investments shown on the chart. The risk, however, tends to be constant
over time.
3
<PAGE> 27
- --------------------------------------------------------------------------------
GATEWAY MID CAP INDEX FUND
Portfolio of Investments - December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stock Value
- --------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE & EQUIPMENT 0.89%
200 OEA, Inc. $ 5,950
400 Rohr Inc. * 5,750
100 Sequa Corp. * 3,063
300 Sundstrand Corporation 21,150
200 Teleflex Incorporated 8,200
200 Thiokol Corporation 6,788
--------
50,901
--------
APPAREL 0.77%
200 Ann Taylor Stores Corp. * 2,075
500 Cintas Corp. 22,375
200 Jones Apparel Group Inc. * 7,875
300 Nine West Group, Inc. * 11,250
--------
43,575
--------
AUTOMOBILES & PARTS 0.66%
300 Arvin Industries, Inc. 4,969
300 Federal-Mogul Corporation 5,869
400 Federal Signal Corporation 10,325
300 Modine Manufacturing Company 7,275
300 Superior Industries International 7,894
--------
36,332
--------
OTHER CONSUMER DURABLES 1.74%
400 Albany International Corp. Class A 7,275
700 Burlington Industries, Inc. * 9,144
200 Church & Dwight Company, Inc. 3,713
400 GenCorp, Inc. 4,925
200 Herman Miller Inc. 6,050
100 HON Industries, Inc. 2,350
800 Leggett & Platt, Inc. 19,450
100 NCH Corporation 5,775
1,300 Shaw Industries, Inc. 19,094
200 Stanhome Incorporated 5,813
700 Unifi, Inc. 15,531
--------
99,120
--------
BUILDING MATERIALS & CONSTRUCTION 0.27%
200 Granite Construction, Inc. $ 6,325
200 Jacobs Engineering Group Inc. * 5,025
200 Southdown Incorporated * 3,875
--------
15,225
--------
BUSINESS SERVICES & SUPPLIES 2.75%
100 Angelica Corporation 2,050
450 Comdisco, Inc. 10,238
1,400 Equifax Inc. 29,838
300 FlightSafety International, Inc. 15,075
300 Healthcare COMPARE Corp. * 13,106
300 Information Resources, Inc. * 3,656
400 Kelly Services, Inc. 11,250
700 Manpower Inc. 19,644
400 Olsten Corp. 15,750
450 Paychex, Inc. 22,359
300 Rollins, Inc. 6,638
500 Sotheby's Holdings, Inc. 7,125
--------
156,729
--------
CHEMICALS 3.62%
600 Albemarle Corp. 11,588
300 Betz Laboratories, Inc. 12,281
300 Cabot Corporation 16,163
500 Crompton & Knowles 6,594
300 Dexter Corp. 7,069
1,100 Ethyl Corp. 13,750
300 Ferro Corporation 6,975
700 Fuller (H. B.) Company 24,588
400 Georgia Gulf Corp. 12,250
600 IMC Global, Inc. 24,488
400 Lawter International, Inc. 4,650
300 Loctite Corporation 14,269
600 Lubrizol Corporation 16,725
200 Olin Corporation 14,863
</TABLE>
See accompanying notes to financial statements 4
<PAGE> 28
- --------------------------------------------------------------------------------
GATEWAY MID CAP INDEX FUND
Portfolio of Investments - December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stock Value
- --------------------------------------------------------------------------------
<S> <C> <C>
CHEMICALS - Continued
400 Schulman (A.), Inc. $ 8,950
500 Sterling Chemicals, Inc. * 4,063
300 Wellman, Inc. 6,844
--------
206,110
--------
ELECTRONICS & COMPUTERS 9.71%
500 ADC Telecommunications, Inc. * 18,188
400 Altera Corporation * 19,875
900 American Power Conversion Corp. * 8,494
1,125 Analog Devices, Inc. * 26,438
400 Arrow Electronics, Inc. * 17,225
321 AST Research Inc. * 2,769
800 Atmel Corp. * 17,800
400 Avnet, Inc. 17,850
1,700 Bay Networks, Inc. * 69,806
600 Cirrus Logic, Inc. * 11,888
800 Cypress Semiconductor Corporation * 10,150
800 Dell Computer Corporation * 27,850
300 Hubbell Inc. 19,706
700 Integrated Device Technology 9,056
500 Linear Technology Corporation 19,688
400 Litton Industries, Inc. 17,800
200 MagneTek, Inc. * 1,600
500 Maxim Integrated Products 19,250
1,050 Molex Incorporated 33,600
200 Nellcor, Inc. * 11,675
200 Octel Communications Corp. * 6,463
400 Quantum Corporation * 6,475
700 Seagate Technology, Inc. * 33,200
700 Sensormatic Electronics Corporation 12,075
400 Sequent Computer Systems, Inc. * 5,750
400 Solectron Corp. 17,650
200 Stratus Computer, Inc. * 6,925
400 U. S. Robotics 35,150
300 Varian Associates, Inc. 14,288
500 Vishay Intertechnology Inc. 15,688
600 Xilinx, Inc. * 18,225
--------
552,597
--------
COMPUTER SOFTWARE & PERIPHERALS 5.12%
700 Adobe Systems, Inc. 43,488
400 BMC Software, Inc. * 17,050
300 Borland International, Inc.* 4,969
600 Cadence Design Systems, Inc. * 25,200
400 Compuware Corp. 7,500
700 Conner Peripherals, Inc. * 14,613
400 Electronic Arts Inc. 10,475
1,900 EMC Corporation * 29,213
200 Exabyte Corporation * 2,938
400 FIserv, Inc. * 11,975
1,200 Informix Corporation * 36,075
500 Mentor Graphics Corporation * 9,063
600 Parametric Technology Corporation * 39,825
200 Policy Management Systems Corp. * 9,550
504 Storage Technology Corporation * 12,002
100 Structural Dynamics Research Corp. * 2,925
300 Symantec Corp. * 6,956
200 Symbol Technologies, Inc. * 7,900
--------
291,717
--------
ENERGY 4.61%
600 Anadarko Petroleum Corp. 32,438
600 Apache Corporation 17,663
300 BJ Services Company * 8,700
300 Diamond Shamrock, Inc. 7,763
1,600 Global Marine, Inc. * 13,900
800 Lyondell Petrochemical Company 18,350
300 MAPCO 16,369
400 Murphy Oil Corporation 16,600
1,100 Nabors Industries, Inc. * 12,306
</TABLE>
5 See accompanying notes to financial statements
<PAGE> 29
- --------------------------------------------------------------------------------
GATEWAY MID CAP INDEX FUND
Portfolio of Investments - December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stock Value
- --------------------------------------------------------------------------------
<S> <C> <C>
ENERGY - Continued
500 Noble Affiliates, Inc. $ 14,969
300 Parker & Parsley Petroleum 6,619
500 Parker Drilling Company * 3,094
400 Quaker State Corporation 5,100
400 Questar Corporation 13,400
1,000 Ranger Oil Limited 6,250
300 Seagull Energy Corporation * 6,713
400 Smith International, Inc. * 9,425
300 Tosco Corporation 11,494
400 Valero Energy Corporation 9,800
300 Varco International, Inc. * 3,619
453 Weatherford International, Inc. 13,109
500 Witco Corporation 14,594
--------
262,275
--------
FINANCE, INSURANCE & REAL ESTATE 15.02%
800 AFLAC Incorporated 34,750
500 American Financial Group, Inc. 15,313
1,000 Aon Corporation 49,813
400 Bancorp Hawaii, Inc. 14,325
1,155 Bear Stearns Companies, Inc. 22,883
200 Castle and Cooke Inc. 3,375
400 Central Fidelity Banks, Inc. 12,750
400 City National Corporation 5,600
400 Crestar Financial Corporation 23,600
100 Dauphin Deposit Corporation 2,900
200 Edwards (A. G.), Inc. 4,750
600 Fifth Third Bancorp 43,725
600 First of America Bank Corporation 26,663
100 First Security Corporation 3,825
700 First Tennessee National Corp. 42,263
300 First Virginia Banks, Inc. 12,525
500 Foundation Health Corp. * 21,469
700 Franklin Resources, Inc. 35,263
1,200 Green Tree Financial Corporation 31,650
200 Hartford Steam Boiler Inspection and Insurance Co. 10,000
600 Healthsource, Inc. 21,563
1,100 Hibernia Corporation 11,756
300 Kemper Corporation 14,888
900 Marshall & Ilsley Corporation 23,344
500 Mercantile Bancorporation, Inc. 23,031
500 Mercantile Bankshares Corporation 13,844
600 Meridian Bancorp, Inc. 27,938
500 Northern Trust Corporation 27,844
700 Paine Webber Group, Inc. 13,956
200 PHH Corporation 9,338
700 Progressive Corporation 34,300
400 Provident Companies, Inc. 13,525
400 Regions Financial Corp. 17,225
1,600 Schwab (Charles) Corporation 32,100
900 SouthTrust Corporation 23,175
800 State Street Boston Corporation 36,000
500 SunAmerica Inc. 23,688
200 Transatlantic Holdings, Inc. 14,688
500 UJB Financial Corp. 17,781
441 U. S. Bancorp of Oregon 14,801
499 Value Health, Inc. * 13,691
300 Wilmington Trust Corporation 9,300
--------
855,218
--------
FOOD, BEVERAGE & TOBACCO 3.80%
1,300 Coca-Cola Enterprises, Inc. 34,856
400 Dean Foods Company 11,000
600 Dole Food Company, Inc. 20,963
200 Dreyer's Grand Ice Cream, Inc. 6,725
750 Flowers Industries, Inc. 9,234
500 IBP, Inc. 25,313
200 International Multifoods Corp. 4,025
300 Lancaster Colony Corporation 11,213
300 Lance, Inc. 4,894
</TABLE>
See accompanying notes to financial statements 6
<PAGE> 30
- --------------------------------------------------------------------------------
GATEWAY MID CAP INDEX FUND
Portfolio of Investments - December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stock Value
- --------------------------------------------------------------------------------
<S> <C> <C>
FOOD, BEVERAGE & TOBACCO - Continued
800 McCormick & Company, Inc. $ 19,400
400 Michael Foods, Inc. 4,700
500 Savannah Foods & Industries, Inc. 5,688
400 Smucker (J. M.) Company 8,800
1,300 Tyson Foods, Inc. 34,206
300 Universal Corporation Holding Co. 7,313
200 Universal Foods Corporation 8,013
--------
216,343
--------
HEALTH 7.97%
400 Acuson Corporation * 4,900
200 Advanced Technology Laboratories, Inc. * 4,925
600 Applied Bioscience International, Inc. * 4,125
400 Apria Healthcare Group Inc. 11,400
400 Bergen Brunswig Corporation 9,975
300 Biogen, Inc. * 18,375
400 Cardinal Health, Inc. 21,825
400 Carter-Wallace, Inc. 4,550
500 Centocor, Inc. * 15,500
409 Chiron Corporation * 45,246
400 Coram Healthcare Corp. * 1,750
300 Cordis Corporation * 30,150
300 Datascope Corporation * 7,125
300 Dentsply International Inc. 11,981
100 Diagnostic Products Corporation 3,788
400 FHP International Corp. * 11,300
400 Forest Laboratories, Inc. * 18,075
200 Genzyme Corporation * 12,450
300 Health Care & Retirement * 10,500
800 HEALTHSOUTH Rehabilitation Corp. * 23,250
415 Horizon CMS Healthcare Corp. 10,427
1,100 IVAX Corporation 31,419
576 Laboratory Corp. of America * 5,364
400 McKesson Corp. 20,250
1,200 Mylan Laboratories, Inc. 28,050
600 NovaCare, Inc. * 3,113
300 PacifiCare Health Systems, Inc. * 26,175
700 Perrigo Company * 8,356
200 Scherer (R. P.) Corp. 9,813
500 Stryker Corporation 26,219
400 Surgical Care Affiliates, Inc. 13,550
--------
453,926
--------
MACHINERY & RELATED PRODUCTS 0.71%
200 Duriron Company, Inc. 4,675
200 Goulds Pumps Incorporated 4,988
300 Kennametal Inc. 9,488
100 Lawson Products, Inc. 2,469
200 Nordson Corporation 11,375
300 Stewart & Stevenson Services, Inc. 7,613
--------
40,608
--------
MINING & METALS 1.36%
800 Battle Mountain Gold Company 6,700
300 CalMat Company 5,475
400 CBI Industries, Inc. 13,150
100 Cleveland-Cliffs, Inc. 4,088
300 Donaldson Company, Inc. 7,556
300 Keystone International, Inc. 6,019
625 RPM, Inc. 10,234
300 Vulcan Materials Co. 17,288
300 Watts Industries, Inc. 6,956
--------
77,466
--------
PAPER & FOREST PRODUCTS 2.13%
400 Bowater, Inc. 14,175
200 Chesapeake Corporation 5,863
400 Consolidated Papers, Inc. 22,450
400 Glatfelter (P. H.) Co. 6,850
500 Longview Fibre Company 8,094
200 Pentair, Inc. 10,000
300 Rayonier Inc. 9,994
</TABLE>
7 See accompanying notes to financial statements
<PAGE> 31
- --------------------------------------------------------------------------------
GATEWAY MID CAP INDEX FUND
Portfolio of Investments - December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stock Value
- --------------------------------------------------------------------------------
<S> <C> <C>
PAPER & FOREST PRODUCTS - Continued
840 Sonoco Products Company $ 22,050
400 Tambrands Inc. 19,100
96 Wausau Paper Mills Company 2,640
--------
121,216
--------
PRECISION INSTRUMENTS 1.33%
300 Ametek, Inc. 5,663
300 Beckman Instruments, Inc. 10,631
200 Measurex Corporation 5,650
600 Teradyne, Inc. * 14,963
750 Thermo Electron Corporation * 38,859
--------
75,766
--------
RETAIL 3.18%
400 Best Buy Company, Inc. * 6,500
200 Claire's Stores, Inc. 3,538
700 CML Group, Inc. 3,500
600 Dollar General Corporation 12,525
300 Duty Free International, Inc. 4,800
500 Family Dollar Stores, Inc. 6,875
400 Fingerhut Companies, Inc. 5,525
200 Fred Meyer Inc. * 4,513
400 Hancock Fabrics, Inc. 3,650
400 Hannaford Brothers Company 9,825
500 Heilig-Meyers Company 9,125
900 Home Shopping Network, Inc. * 8,156
500 Intelligent Electronics, Inc. 3,031
400 Kohl's Corp. * 21,000
300 Lands' End, Inc. * 4,125
400 MacFrugal's Bargains-Closeouts, Inc. * 5,575
300 Microwarehouse Inc. 13,050
600 Revco (D. S.) Inc. 16,950
600 Ruddick Corporation 6,900
1,000 Service Merchandise Company Inc. * 5,000
200 Tiffany & Co. 10,100
400 Vons Companies, Inc. * 11,250
300 Waban Inc. * 5,644
--------
181,157
--------
SERVICES 5.92%
500 Air & Water Technologies Corp. * 3,094
200 Airborne Freight Corporation 5,338
100 Alaska Air Group, Inc. * 1,625
300 Arnold Industries, Inc. 5,288
300 Atlantic Southeast Airlines, Inc. 6,488
200 Banta Corp. 8,875
400 Belo (A. H.) Corporation Class A 13,875
400 Bob Evans Farms, Inc. 7,650
700 Brinker International, Inc. * 10,631
300 Buffets, Inc. * 4,200
600 Calgon Carbon Corp. 7,163
300 Chris-Craft Industries, Inc. * 12,938
100 CPI Corporation 1,594
600 Cracker Barrel Old Country Store, Inc. * 10,388
300 Ennis Business Forms, Inc. 3,694
300 Gibson Greetings, Inc. * 4,819
100 Houghton Mifflin Company 4,288
500 Hunt (J. B.) Transport Services, Inc. 8,438
400 Illinois Central Corp. 15,400
200 International Dairy Queen, Inc. * 4,600
400 Kansas City Southern Industries, Inc. 18,350
400 Lee Enterprises, Incorporated 9,150
300 Media General, Inc. 9,113
300 Morrison Restaurants Inc. 4,181
800 Omnicom Group Inc. 29,750
400 Outback Steakhouse Inc. 14,375
400 Promus Hotel Corporation 8,850
400 Reynolds and Reynolds Company 15,500
500 Rollins Environmental Services, Inc. * 1,438
200 Sbarro Incorporated 4,288
</TABLE>
See accompanying notes to financial statements 8
<PAGE> 32
- --------------------------------------------------------------------------------
GATEWAY MID CAP INDEX FUND
Portfolio of Investments - December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stock Value
- --------------------------------------------------------------------------------
<S> <C> <C>
SERVICES - Continued
100 Scholastic Corp. $ 7,788
600 Sizzler International, Inc. * 2,550
400 Standard Register Company 8,050
200 TCA Cable TV Incorporated 5,563
600 Topps Company, Inc. 3,150
400 Trinity Industries, Inc. 12,575
200 Wallace Computer Services, Inc. 10,925
100 Washington Post Company 28,150
400 Western Publishing Group, Inc. * 3,175
--------
337,307
--------
STEEL & IRON 0.61%
700 Allegheny Ludlum Corporation 13,038
200 Carpenter Technology Corporation 8,225
100 Lukens Inc. 2,869
200 Oregon Steel Mills, Inc. 2,800
200 Precision Castparts Corporation 7,975
--------
34,907
--------
OTHER INDUSTRIAL CYCLICALS 4.71%
200 Alexander & Baldwin Company 4,650
400 Alumax, Inc. * 12,300
300 American President Companies Ltd. 6,975
300 Brush Wellman Inc. 5,156
100 Carlisle Companies Inc. 4,038
875 Clayton Homes, Inc. 18,758
200 Cross (A. T.) Company 3,025
600 Danaher Corp. 18,975
300 Diebold Incorporated 16,613
400 Fastenal Company 17,000
200 First Brands Corporation 9,488
300 Hanna (M. A.) Company 8,381
30 Hewlett Packard Company 2,483
200 Kaydon Corporation 6,088
630 Mark IV Industries, Inc. 12,403
100 MAXXAM Inc. * 3,525
1,300 Office Depot, Inc. * 25,594
300 Overseas Shipholding Group, Inc. 5,738
400 Sealed Air Corporation * 11,250
900 Staples, Inc. * 22,050
200 Tecumseh Products Company 10,425
600 Tidewater Inc. 18,863
200 Verifone, Inc. * 5,725
400 York International Corporation 18,875
--------
268,378
--------
UTILITIES 15.70%
700 AES Corporation * 16,756
1,100 Allegheny Power System, Inc. 31,419
500 Atlantic Energy Inc. 9,625
700 Atlanta Gas Light Company 13,694
100 Black Hills Corporation 2,475
500 Brooklyn Union Gas Company 14,563
500 California Energy Company * 9,688
200 Central Louisiana Electric Company, Inc. 5,400
400 Central Maine Power Company 5,750
500 Century Telephone Enterprises, Inc. 15,938
800 CMS Energy Corporation 23,850
500 COMSAT 9,375
600 Delmarva Power & Light Company 13,725
400 El Paso Natural Gas Company 11,425
900 Florida Progress Corporation 31,838
1,400 Frontier Corp. 41,738
300 Hawaiian Electric Industries, Inc. 11,606
400 Idaho Power Company 11,950
100 Illinova Corp. 3,000
300 Indiana Energy, Inc. 7,163
400 IPALCO Enterprises, Inc. 15,200
400 Kansas City Power & Light Company 10,475
300 LG&E Energy Corp. 12,713
</TABLE>
9 See accompanying notes to financial statements
<PAGE> 33
- --------------------------------------------------------------------------------
GATEWAY MID CAP INDEX FUND
Portfolio of Investments - December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stock Value
- --------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES - Continued
400 Lincoln Telecommunications Company $ 8,500
600 MCN Corporation 13,913
888 Mid American Energy Company 14,874
300 Minnesota Power & Light Company 8,531
500 Montana Power Company 11,344
300 National Fuel Gas Company 10,050
400 Nevada Power Company 8,875
600 New England Electric System 23,813
700 New York State Electric & Gas Corp. 18,069
1,700 NEXTEL Communications, Inc. * 25,181
600 NIPSCO Industries, Inc. 22,950
1,200 Northeast Utilities 29,250
400 Oklahoma Gas & Electric Company 17,200
800 Pinnacle West Capital Corporation 23,050
500 Portland General Corp. Holding Co. 14,531
1,100 Potomac Electric Power Company 28,806
600 Public Service Company of Colorado 21,188
400 Public Service Company of New Mexico * 7,000
700 Puget Sound Power & Light Co. 16,275
1,000 SCANA Corporation 28,563
600 Southern New England Telecommunications Corp. 23,813
400 Southwestern Public Service Company 13,050
1,100 TECO Energy, Inc. 28,119
500 Telephone & Data Systems, Inc. 19,813
400 UtiliCorp United Inc. 11,775
400 Vanguard Cellular Systems, Inc. * 8,050
400 Washington Gas Light Company 8,250
1,000 Wisconsin Energy Corporation 30,563
1,700 Worldcom Inc. 60,138
300 WPL Holdings, Inc. * 9,131
----------
894,031
----------
MISCELLANEOUS 2.98%
700 Callaway Golf Co. 15,794
800 Circus Circus Enterprises, Inc. * 22,250
200 GATX Corporation 9,725
700 Harley Davidson, Inc. 20,169
200 Harsco Corp. 11,650
500 Hospitality Franchise Systems * 40,813
1,300 International Game Technology 14,138
900 Mirage Resorts Incorporated * 31,050
100 National Presto Industries, Inc. 3,969
----------
169,558
----------
TOTAL COMMON STOCKS 95.56% 5,440,462
(cost $4,740,453)
Contracts
- -----------
PUT OPTIONS ON THE STANDARD & POOR'S 500
STOCK INDEX 0.18%
40 expiring March 1996 at 570 10,250
(cost $24,140)
REPURCHASE AGREEMENT 4.07%
5.3% repurchase agreement dated December 29, 1995
with Star Bank, N.A., due January 2, 1996
(repurchase proceeds $232,137),
collateralized by $245,000
6% GNMA Pool #8974, maturity May 20, 2022
(market value $250,972) 232,000
----------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENT 99.81% 5,682,712
OTHER ASSETS AND LIABILITIES, NET 0.19% 10,717
----------
NET ASSETS 100% $5,693,429
==========
<FN>
* Denotes a non-income producing security.
</TABLE>
See accompanying notes to financial statements 10
<PAGE> 34
================================================================================
GATEWAY MID CAP INDEX FUND
Statement of Assets and Liabilities - December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Common stocks, at value (original cost $4,740,453) $5,440,462
Put options, at value (original cost of $24,140) 10,250
Repurchase agreement 232,000
Dividends receivable 8,726
Receivable for fund shares sold 530
Cash 305
Other assets 15,204
----------
5,707,477
----------
LIABILITIES:
Payable for fund shares redeemed 2,700
Dividends payable to shareholders 1,109
Other accrued expenses and liabilities 10,239
----------
14,048
----------
NET ASSETS $5,693,429
==========
NET ASSETS CONSIST OF:
Paid-in capital applicable to 490,235 shares outstanding
(unlimited number of shares authorized, no par value) $4,990,445
Undistributed net investment income 1,679
Accumulated realized gain, net 15,186
Unrealized appreciation, net 686,119
----------
$5,693,429
==========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $ 11.61
==========
</TABLE>
================================================================================
GATEWAY MID CAP INDEX FUND
Statement of Operations - For the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income $ 104,142
Interest income 10,071
-----------
114,213
-----------
EXPENSES:
Transfer agent and accounting fees 78,000
Investment advisory and management fees 50,766
Custodian fees 15,153
Registration fees 15,031
Professional fees 13,620
Trustees' fees 6,234
Reports to shareholders 4,600
Other expenses 7,112
-----------
190,516
Fees waived and expenses reimbursed under contract (77,744)
Expenses reimbursed voluntarily (1,267)
-----------
111,505
-----------
NET INVESTMENT INCOME 2,708
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on investments:
Securities 281,196
Call options expired and closed (14,102)
Put options expired and closed (65,330)
-----------
Net realized gain on investments 201,764
-----------
Change in unrealized appreciation (depreciation) of
investments:
Securities 1,059,752
Call options 32,050
Put options (13,890)
-----------
Change in net unrealized appreciation (depreciation)
of investments 1,077,912
-----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 1,279,676
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 1,282,384
===========
</TABLE>
11 See accompanying notes to financial statements
<PAGE> 35
================================================================================
GATEWAY MID CAP INDEX FUND
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
----------- -----------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 2,708 $ 55,915
Net realized gain (loss) on investments 201,764 (8,877)
Change in unrealized appreciation (depreciation)
of investments 1,077,912 (574,930)
----------- ------------
Net increase (decrease) in net assets resulting
from operations 1,282,384 (527,892)
----------- ------------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS:
From net investment income (28,380) (34,422)
From net realized gain on investments (175,010) (6,884)
----------- ------------
Decrease in net assets from dividends and distributions (203,390) (41,306)
----------- ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 770,226 2,603,076
Net asset value of shares issued in reinvestment
of dividends and distributions 202,760 61,306
Payments for shares redeemed (2,947,026) (5,971,331)
----------- ------------
Net decrease in net assets from fund share transactions (1,974,040) (3,306,949)
----------- ------------
NET DECREASE IN NET ASSETS (895,046) (3,876,147)
NET ASSETS:
Beginning of period 6,588,475 10,464,622
----------- ------------
End of period, including undistributed net
investment income of $1,679 and $27,351 $ 5,693,429 $ 6,588,475
=========== ============
FUND SHARE TRANSACTIONS:
Shares sold 68,899 258,936
Shares issued in reinvestment of dividends and 17,473 6,258
distributions
Less shares redeemed (283,661) (607,657)
----------- ------------
NET DECREASE IN SHARES OUTSTANDING (197,289) (342,463)
=========== ============
</TABLE>
================================================================================
GATEWAY MID CAP INDEX FUND
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period Ended
Year Ended December 31, December 31,
1995(4) 1994 1993 1992 (1)
------ ---- ---- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.58 $10.16 $ 10.04 $10.00
------ ------ ------- ------
Net investment income 0.03 0.08 0.11 0.03
Net gains (losses) on securities 2.43 (0.60) 0.41 0.04
------ ------ ------- ------
Total from investment operations 2.46 (0.52) 0.52 0.07
------ ------ ------- ------
Dividends from net investment income (0.06) (0.05) (0.11) (0.03)
Distributions from capital gains (0.37) (0.01) (0.29) 0.00
------ ------ ------- ------
Total distributions (0.43) (0.06) (0.40) (0.03)
------ ------ ------- ------
Net asset value, end of period $11.61 $ 9.58 $ 10.16 $10.04
====== ====== ======= ======
TOTAL RETURN 25.68% (5.12%) 5.18% 0.70%(3)
Net assets, end of period (millions) $ 5.69 $ 6.59 $ 10.46 $10.69
Ratio of net expenses to average
net assets (2) 1.98% 1.50% 1.50% 1.50%
Ratio of net investment income to
average net assets (2) 0.05% 0.59% 1.06% 1.39%
Portfolio turnover rate 18% 8% 105% 0%(3)
<FN>
(1) The Mid Cap Index Fund commenced operations on September 30, 1992.
(2) The ratio of net expenses to average net assets would have increased and
the ratio of net investment income to average net assets would have
decreased by 0.02% in 1995 had the Adviser not voluntarily reimbursed
expenses. These ratios have been annualized for periods less than a year.
(3) Not annualized.
(4) On December 15, 1995, Gateway Investment Advisers, L.P. became investment
adviser of the Fund.
</TABLE>
See accompanying notes to financial statements 12
<PAGE> 36
===============================================================================
GATEWAY SMALL CAP INDEX FUND
Co-Portfolio Managers' Overview
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------
TOP TEN HOLDINGS
GATEWAY SMALL CAP INDEX FUND
AS OF DECEMBER 31, 1995
- --------------------------------------------- ------------
<S> <C>
Macromedia Inc. 1.11%
Centocor, Inc. 1.05%
Fore Systems Inc. 1.01%
Global Marine, Inc. 0.98%
Presstek Inc. 0.90%
Surgical Care Affiliates, Inc. 0.90%
Bed Bath and Beyond 0.86%
Cordis Corporation 0.85%
First American Corp. of Tennessee 0.81%
Shared Medical Systems Corporation 0.81%
- --------------------------------------------- ------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
1995
- ----------------------------------------------------------------------------------
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONTRIBUTION OF STOCKS
Performance of Stocks 4.41% 9.17% 8.13% 1.06%
Dividends Earned 0.51 0.47 0.37 0.43
INTEREST EARNED 0.00 0.00 0.01 0.01
CONTRIBUTIONS OF OPTIONS
Effect of Options: Calls (0.77) 0.00 0.00 0.00
Effect of Options: Puts 0.44 (1.25) (0.41) (0.37)
EFFECT OF FEES
Fund Expenses (0.41) (0.43) (0.42) (0.43)
Brokerage Commissions (0.03) (0.08) (0.01) (0.01)
----------------------------------------------------------------------------------
TOTAL RETURN 4.15% 7.88% 7.67% 0.69%
----------------------------------------------------------------------------------
</TABLE>
RISK/REWARD CHART
-----------------
SINCE INCEPTION
6/16/93 To 12/31/95
<TABLE>
<CAPTION>
Small Cap Index Fund
6/16/93 - 12/31/95
Risk Return
---- ------
<S> <C> <C>
US T-bills (30 day) 0.30% 4.23%
Mid Cap Index Fund 9.12% 8.12%
S&P 500 7.32% 15.76%
</TABLE>
The above chart shows that, in general, more risk must be taken to earn
higher total returns. The chart shows 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 Small Cap Index Fund. The line connecting Treasury bills
and the S&P 500 Index shows all the possible outcomes if an investment had
been allocated between these two choices in varying positions. When the
Small Cap Index 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. If the
point appears below the line, it shows the reverse. The succeeding years
may be quite different in terms of reward for all three investments shown
on the chart. The risk, however, tends to be constant over time.
13
<PAGE> 37
================================================================================
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stock Value
-----------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE & EQUIPMENT 0.97%
1,200 Kaman Corporation $ 13,275
1,000 Teleflex Incorporated 41,000
1,100 Thiokol Corporation 37,331
---------
91,606
---------
APPAREL 1.87%
1,200 Brown Group, Inc. 17,025
1,600 Jones Apparel Group Inc. * 63,000
1,500 Kellwood Company 30,656
900 Oshkosh B' Gosh, Inc. 15,413
2,000 Tultex Corporation * 8,250
2,100 Westpoint Stevens Inc. * 41,869
---------
176,213
---------
AUTOMOBILES & PARTS 1.72%
1,400 Arvin Industries, Inc. 23,188
1,100 Clarcor Inc. 22,275
2,300 Federal-Mogul Corporation 44,994
1,200 Standard Products Co. 21,075
1,900 Superior Industries International 49,994
---------
161,526
---------
OTHER CONSUMER DURABLES 3.16%
2,800 Acclaim Entertainment * 34,825
1,900 Albany International Corp. Class A 34,556
1,000 Bassett Furniture Industries, Inc. 23,000
2,000 Cone Mills Corporation * 22,500
2,300 GenCorp, Inc. 28,319
1,600 HON Industries, Inc. 37,600
1,200 La-Z-Boy Chair Company 36,900
500 NCH Corporation 28,875
1,500 Russ Berrie and Company, Inc. 18,938
1,100 Stanhome Incorporated 31,969
---------
297,482
---------
BUILDING MATERIALS & CONSTRUCTION 2.34%
1,800 Centex Corporation 62,438
2,300 Kaufman and Broad Home Corp. 34,213
2,100 Lennar Corporation 53,156
2,300 Morrison Knudsen Corporation * 10,063
1,100 Pulte Corporation 36,988
1,200 Southdown Incorporated * 23,250
---------
220,108
---------
BUSINESS SERVICES & SUPPLIES 2.57%
600 Angelica Corporation 12,300
3,150 Comdisco, Inc. 71,663
1,200 CompUSA, Inc. * 37,350
1,900 Information Resources, Inc. * 23,156
2,300 Rollins, Inc. 50,888
3,300 Sotheby's Holdings, Inc. 47,025
---------
242,382
---------
CHEMICALS 1.46%
600 Chemed Corporation 23,288
800 Fuller (H. B.) Company 28,100
2,800 Lawter International, Inc. 32,550
800 Petrolite Corporation 22,300
3,800 Sterling Chemicals, Inc. * 30,875
---------
137,113
---------
ELECTRONICS & COMPUTERS 3.35%
1,848 AST Research Inc. * 15,939
2,700 Aura Systems Inc. * 15,273
1,650 Baldor Electric Company 33,103
1,100 Cyrix Corporation * 25,163
3,600 Geotek Communications, Inc. * 23,063
1,200 Lattice Semiconductor * 39,225
1,500 Octel Communications Corp. * 48,469
2,500 Quantum Corporation * 40,469
2,200 Sequent Computer Systems, Inc. * 31,625
2,400 VLSI Technology, Inc. * 43,350
---------
315,679
---------
COMPUTER SOFTWARE & PERIPHERALS 9.00%
2,500 Cheyenne Software Inc. * 65,781
1,400 Electronics for Imaging Inc. * 60,725
1,500 Exabyte Corporation * 22,031
</TABLE>
See accompanying notes to financial statements 14
<PAGE> 38
================================================================================
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stock Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMPUTER SOFTWARE & PERIPHERALS - Continued
1,600 Fore Systems Inc. * $ 95,300
1,400 FTP Software Inc. * 40,688
900 Global Village Communications * 17,156
2,000 Macromedia Inc. * 104,125
700 Medic Computer System Inc. * 42,263
2,000 Merisel, Inc. * 8,625
2,500 NetManage Inc. * 57,813
1,400 Network General Corp. * 46,375
2,600 S3, Incorporated * 45,663
1,400 Shared Medical Systems Corporation 75,863
2,000 Structural Dynamics Research Corp. * 58,500
1,400 Symbol Technologies, Inc. * 55,300
2,900 Western Digital Corp. * 51,656
---------
847,864
---------
ENERGY 6.45%
1,700 BJ Services Company * 49,300
10,600 Global Marine, Inc. * 92,088
5,400 Nabors Industries, Inc. * 60,413
7,700 Noram Energy Corp. 67,856
1,600 Oneok, Inc. 36,600
2,100 Pogo Producing Company 59,194
2,200 Quaker State Corporation 28,050
5,300 Rowan Companies, Inc. * 51,675
2,400 Seagull Energy Corporation * 53,700
2,500 Smith International, Inc. * 58,906
1,500 Southwest Gas Corporation 26,531
1,800 Southwestern Energy Company 22,725
---------
607,038
---------
FINANCE, INSURANCE & REAL ESTATE 19.79%
3,200 20th Century Industries * 63,600
1,000 Alex. Brown & Sons Incorporated 42,063
1,200 American Bankers Insurance Group, Inc. 47,025
700 Astoria Financial Corp. * 32,025
600 Bell Bancorp 21,563
3,100 California Federal Bank, F.S.B. * 48,825
5,200 Catellus Development Corporation * 30,550
2,800 City National Corporation 39,200
1,200 Collective Bancorp, Inc. 30,600
1,800 Compass Bancshares Inc. 59,063
2,000 Dauphin Deposit Corporation 58,000
1,600 First American Corp. of Tennessee 76,000
1,800 First Commerce Corp. of Louisiana 57,263
600 Foremost Corporation of America 30,600
1,700 Fourth Financial Corporation 69,275
2,500 Glendale Federal Bank * 44,063
900 Great Financial Corp. 21,263
1,500 Home Financial Corp. 23,250
1,100 Integon Corporation 22,619
1,600 John Alden Financial Corp. 33,300
1,200 Liberty Corporation 40,350
1,800 Life Partners Group, Inc. 24,525
1,100 Life Re Corporation 27,569
1,400 Life USA Holding Inc. * 11,200
1,700 Long Island Bancorp 44,944
2,800 Mid Atlantic Medical Services * 67,725
1,100 NAC Re Corp. 39,531
900 Onbancorp, Inc. 30,094
2,300 Peoples Bank Bridgeport 43,988
1,000 PHH Corporation 46,688
2,200 Premier Bancorp, Inc. * 51,288
7,300 Reliance Group Holdings Inc. 63,419
1,900 Riggs National Corp. * 24,581
3,100 Rollins Truck Leasing Corp. 34,100
2,600 Roosevelt Financial Group 50,050
400 Seafield Capital Corp. 13,800
1,600 Standard Federal Bank 63,100
2,000 Summit Bancorporation 62,750
1,400 T. Rowe Price Associates Inc. 68,600
1,800 United Companies Financial Corp. 47,700
1,995 Valley National Bancorp 49,750
800 Washington National Corporation 22,100
3,900 Western National Corp. 62,644
1,100 Zenith National Insurance Corp. 23,581
---------
1,864,224
---------
</TABLE>
15 See accompanying notes to financial statements
<PAGE> 39
================================================================================
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stock Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
FOOD, BEVERAGE & TOBACCO 3.43%
3,400 Chiquita Brands International, Inc. $ 46,325
900 Dreyer's Grand Ice Cream, Inc. 30,263
3,900 Flowers Industries, Inc. 48,019
1,200 International Multifoods Corp. 24,150
1,400 Interstate Bakeries Corporation 31,238
1,300 Michael Foods, Inc. 15,275
500 Midwest Grain Products Inc. 7,188
1,500 Ralcorp Holdings Inc.* 36,375
1,900 Savannah Foods & Industries, Inc. 21,613
3,000 Starbucks Corp. * 62,813
---------
323,259
---------
HEALTH 8.23%
2,100 Acuson Corporation * 25,725
900 Advanced Technology Laboratories, Inc. * 22,163
2,400 Advanced Tissue Sciences Inc. * 24,150
2,100 Amsco International, Inc. * 31,238
1,600 Ballard Medical Products 28,400
2,200 Bergen Brunswig Corporation 54,863
1,234 Block Drug Company Inc. 43,034
3,200 Centocor, Inc. * 99,200
800 Cordis Corporation * 80,400
800 Dentsply International Inc. 31,950
900 Diagnostic Products Corporation 34,088
1,800 Haemonetics Corporation * 31,838
1,800 Herbalife International Inc. 15,750
1,200 Integrated Health Services 30,000
4,800 Perrigo Company * 57,300
1,650 Summit Technology, Inc. * 55,894
2,500 Surgical Care Affiliates, Inc. 84,688
1,400 Ventritex Inc. * 24,588
---------
775,269
---------
MACHINERY & RELATED PRODUCTS 3.18%
1,700 BW/IP, Inc. 27,625
1,200 Cincinnati Milacron, Inc. 31,425
1,500 Gerber Scientific, Inc. 24,469
2,300 Giddings & Lewis, Inc. 37,663
1,300 Goulds Pumps Incorporated 32,419
1,600 Kennametal Inc. 50,600
700 Lawson Products, Inc. 17,281
500 Nacco Industries, Inc. 27,719
1,300 Silicon Valley Group Inc. * 32,906
800 Zurn Industries, Inc. 17,000
---------
299,107
---------
MINING & METALS 1.03%
1,600 Donaldson Company, Inc. 40,300
3,400 Hecla Mining Company * 23,588
2,400 Pegasus Gold Inc. * 33,150
---------
97,038
---------
PAPER & FOREST PRODUCTS 1.87%
1,400 Chesapeake Corporation 41,038
3,400 Gaylord Container Corp. * 27,838
1,100 Pentair, Inc. 55,000
1,891 Wausau Paper Mills Company 52,003
---------
175,879
---------
PRECISION INSTRUMENTS 1.41%
2,000 Ametek, Inc. 37,750
1,200 Beckman Instruments, Inc. 42,525
1,200 Credence Systems Corp. * 27,300
900 Measurex Corporation 25,425
---------
133,000
---------
RETAIL 4.10%
2,100 Bed Bath and Beyond * 81,375
600 Blair Corporation 18,938
2,000 Cato Corporation 15,375
6,600 Charming Shoppes, Inc. * 19,183
1,600 Dress Barn, Inc. * 15,600
1,900 Duty Free International Inc. 30,400
1,600 Eagle Hardware & Garden, Inc. * 11,800
1,800 Fred Meyer Inc. * 40,613
5,900 Home Shopping Network, Inc. * 53,469
2,000 Intelligent Electronics, Inc. 12,125
2,100 Lands' End, Inc. * 28,875
</TABLE>
See accompanying notes to financial statements 16
<PAGE> 40
================================================================================
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stock Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
RETAIL - Continued
1,800 MacFrugal's Bargains-Closeouts, Inc. * $ 25,088
1,700 Ross Stores, Inc. 32,831
---------
385,672
---------
SERVICES 9.62%
2,200 Air & Water Technologies Corp. * 13,613
1,200 Airborne Freight Corporation 32,025
900 Alaska Air Group, Inc. * 14,625
2,600 Allwaste, Inc. * 12,350
1,800 Arnold Industries, Inc. 31,725
1,200 Banta Corp. 53,250
2,500 Calgon Carbon Corp. 29,844
1,560 Chris-Craft Industries, Inc. * 67,275
1,100 Gibson Greetings, Inc. * 17,669
900 Houghton Mifflin Company 38,588
2,600 Hunt (J. B.) Transport Services, Inc. 43,875
1,600 International Dairy Queen, Inc. * 36,800
1,500 Luby's Cafeterias, Inc. 33,469
2,200 Morrison Restaurants Inc. 30,663
1,100 New England Business Service, Inc. 24,338
2,200 Pittston Services Group 69,024
900 Presstek Inc. * 85,163
1,000 Pulitzer Publishing Co. 47,813
1,200 Sbarro Incorporated 25,725
1,300 Shorewood Packaging Corp. * 18,688
2,000 Sizzler International, Inc.* 8,500
2,000 Standard Register Company 40,250
1,500 TCA Cable TV Incorporated 41,719
1,000 Wallace Computer Services, Inc. 54,625
1,500 Western Publishing Group, Inc. * 11,906
1,800 Yellow Corporation * 22,388
---------
905,910
---------
STEEL & IRON 1.34%
1,700 AK Steel Holding Corp. * 58,086
1,800 Birmingham Steel Corporation 26,888
1,000 Carpenter Technology Corporation 41,125
---------
126,099
---------
OTHER INDUSTRIAL CYCLICALS 3.71%
1,800 ACX Technologies Inc. * 27,225
1,100 Brush Wellman Inc. 18,906
1,000 Carlisle Companies Inc. 40,375
1,200 Cross (A. T.) Company 18,150
2,600 Data General Corporation * 35,588
1,000 Handy and Harman 16,563
600 MAXXAM Inc. * 21,150
2,100 OMI Corporation * 13,781
2,300 Overseas Shipholding Group, Inc. 43,988
2,200 Pyxis Corporation * 32,313
11,800 Sunshine Mining Company * 15,488
1,400 Verifone, Inc. * 40,075
1,100 West Company Incorporated 25,781
---------
349,383
---------
UTILITIES 6.48%
1,200 Central Hudson Gas & Electric Corp. 36,900
900 CILCORP Inc. 38,250
1,200 Eastern Utilities Associates 28,425
1,700 IES Industries Inc. 44,944
1,867 International CableTel Inc. * 45,275
3,200 LCI International Inc. * 65,400
1,650 MDU Resources Group Inc. 33,103
900 Orange & Rockland Utilities, Inc. 32,175
2,600 Public Service Company of New Mexico * 45,500
1,800 Sierra Pacific Resources Holding Co. 42,075
900 Southern Indiana Gas & Electric Co. 31,388
9,900 Tucson Electric Power Company * 31,556
2,100 UGI Corporation 42,263
800 U. S. Long Distance Corp. * 11,050
2,500 Vanguard Cellular Systems, Inc. * 50,313
1,700 Washington Energy Company 31,663
---------
610,280
---------
MISCELLANEOUS 2.12%
1,700 Argosy Gaming Company * 12,750
1,000 Avid Technology Inc. * 19,063
1,200 Cobra Golf, Inc. * 42,900
</TABLE>
17 See accompanying notes to financial statements
<PAGE> 41
================================================================================
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stock Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
MISCELLANEOUS - Continued
1,100 FoxMeyer Health Corporation * $ 29,425
2,100 Grand Casinos Inc. * 48,956
2,400 Handleman Company 14,100
1,300 Kimball International Inc. 32,825
------------
200,019
------------
Total Common Stocks 99.20% 9,342,150
(cost $8,806,472)
Contracts
---------
PUT OPTIONS ON THE STANDARD & POOR'S 500
STOCK INDEX 0.20%
75 expiring March 1996 at 570 19,219
(cost $45,263)
REPURCHASE AGREEMENT 0.83%
5.3% repurchase agreement dated December 29, 1995
with Star Bank, N.A., due January 2, 1996
(repurchase proceeds $78,047),
collateralized by $85,000
6% GNMA Pool #8974, maturity May 20, 2022
(market value $87,072) 78,000
------------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENT 100.23% 9,439,369
OTHER ASSETS AND LIABILITIES, NET (0.23%) (21,332)
------------
NET ASSETS 100% $9,418,037
============
<FN>
* Denotes a non-income producing security.
</TABLE>
================================================================================
GATEWAY SMALL CAP INDEX FUND
Statement of Assets and Liabilities - December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
ASSETS:
<S> <C>
Common stocks, at value (original cost $8,806,472) $9,342,150
Put options, at value (original cost $45,263) 19,219
Repurchase agreement 78,000
Dividends receivable 11,511
Cash 628
Receivable for fund shares sold 340
Other assets 7,844
------------
9,459,692
------------
LIABILITIES:
Dividends payable to shareholders 25,112
Payable for fund shares redeemed 4,890
Other accrued expenses and liabilities 11,653
------------
41,655
------------
NET ASSETS $9,418,037
============
Net assets consist of:
Paid-in capital applicable to 852,098 shares outstanding
(unlimited number of shares authorized, no par value) $8,874,813
Accumulated realized gain, net 33,590
Unrealized appreciation, net 509,634
------------
$9,418,037
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $11.05
============
</TABLE>
See accompanying notes to financial statements 18
<PAGE> 42
================================================================================
GATEWAY SMALL CAP INDEX FUND
Statement of Operations - For the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income $ 165,793
Interest income 2,195
-----------
167,988
-----------
EXPENSES:
Investment advisory and management fees 85,502
Transfer agent and accounting fees 78,000
Reports to shareholders 20,484
Professional fees 16,867
Registration fees 15,501
Custodian fees 12,264
Trustees' fees 6,914
Other expenses 9,373
-----------
244,905
Fees waived under contract (85,502)
-----------
159,403
-----------
NET INVESTMENT INCOME 8,585
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on investments:
Securities 722,507
Call options expired and closed (97,875)
Put options expired and closed (126,520)
-----------
Net realized gain on investments 498,112
-----------
Change in unrealized appreciation (depreciation) of investments:
Securities 1,352,108
Call options 24,437
Put options (26,044)
-----------
Change in net unrealized appreciation (depreciation)
of investments 1,350,501
-----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 1,848,613
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 1,857,198
===========
</TABLE>
================================================================================
GATEWAY SMALL CAP INDEX FUND
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
----------- ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 8,585 $ (17,972)
Net realized gain on investments 498,112 35,208
Change in unrealized appreciation (depreciation)
of investments 1,350,501 (877,071)
----------- ------------
Net increase (decrease) in net assets
resulting from operations 1,857,198 (859,835)
----------- ------------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS:
From net investment income (8,585) --
From net realized gain on investments (538,981) (99,797)
----------- ------------
Decrease in net assets from dividends and
distributions (547,566) (99,797)
----------- ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 1,238,323 6,047,384
Net asset value of shares issued in reinvestment
of dividends and distributions 522,299 95,519
Payments for shares redeemed (3,309,369) (8,527,840)
----------- ------------
Net decrease in net assets from fund share (1,548,747) (2,384,933)
transactions
----------- ------------
NET DECREASE IN NET ASSETS (239,115) (3,344,565)
NET ASSETS:
Beginning of period 9,657,152 13,001,717
----------- ------------
End of period $ 9,418,037 $ 9,657,152
=========== ============
FUND SHARE TRANSACTIONS:
Shares sold 117,773 590,569
Shares issued in reinvestment of dividends
and distributions 47,267 9,919
Less shares redeemed (315,501) (853,574)
----------- ------------
NET DECREASE IN SHARES OUTSTANDING (150,461) (253,086)
=========== ============
</TABLE>
19 See accompanying notes to financial statements
<PAGE> 43
================================================================================
GATEWAY SMALL CAP INDEX FUND
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period Ended
Year Ended December 31, December 31,
1995(4) 1994 1993 (1)
-------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.63 $10.35 $10.00
------ ------ ------
Net investment income (loss) 0.03 (0.02) 0.04
Net gains (losses) on securities 2.07 (0.60) 0.61
------ ------ ------
Total from investment operations 2.10 (0.62) 0.65
------ ------ ------
Dividends from net investment income (0.01) 0.00 (0.04)
Distributions from capital gains (0.67) (0.10) (0.26)
------ ------ ------
Total distributions (0.68) (0.10) (0.30)
------ ------ ------
Net asset value, end of period $11.05 $ 9.63 $10.35
====== ====== ======
TOTAL RETURN 21.81% (5.99%) 6.50%(3)
Net assets, end of period (millions) $ 9.42 $ 9.66 $13.00
Ratio of net expenses to average net 1.68% 2.00% 1.92%
assets (2)
Ratio of net investment income (loss) to
average net assets (2) 0.09% (0.14%) 0.98%
Portfolio turnover rate 20% 39% 3%(3)
<FN>
(1) The Small Cap Index Fund commenced operations on June 16, 1993.
(2) The ratio of net expenses to average net assets would have increased and
the ratio of net investment income to average net assets would have
decreased by 0.08% in 1993 had the Adviser not voluntarily reimbursed
expenses. These ratios are annualized in periods less than a year.
(3) Not annualized.
(4) On December 15, 1995, Gateway Investment Advisers, L.P. became investment
adviser of the Fund
</TABLE>
==============================================================================
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
- ------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Gateway Trust (the Trust) is a family of four no-load diversified mutual
funds. The financial statements of Gateway Mid Cap Index Fund (Mid Cap) and
Gateway Small Cap Index Fund (Small Cap), collectively the (Funds), are included
in this report. Gateway Index Plus Fund and the Cincinnati Fund are included in
separate annual reports. The Trust is registered under the Investment Company
Act of 1940.
The following is a summary of the Funds' significant accounting policies.
INVESTMENTS VALUATION - The Funds normally value common stocks and option
contracts at the mean of the closing bid and asked quotation on each trading
day. Other securities for which market quotations are not readily available are
valued at fair value as determined in good faith under procedures adopted by the
board of trustees.
INVESTMENT TRANSACTIONS, INVESTMENT INCOME AND EXPENSES - Investment
transactions are recorded on the trade date. Dividend income is recorded on the
ex-dividend date, and interest income is accrued daily. Capital gains and losses
are calculated on an identified cost basis. Expenses that cannot be directly
associated with a specific Trust fund are allocated under policies set by the
board of trustees.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS TO SHAREHOLDERS - Distributions from
net investment income and net realized capital gains are recorded on the
ex-dividend date and are declared and paid annually.
FEDERAL INCOME TAXES - The Funds intend to comply with the provisions of
Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and distribute substantially all taxable income to the shareholders.
Based on this policy, the Funds make no provision for income taxes. The cost of
investments is the same for financial reporting and tax purposes. Tax
regulations require the Funds to assume that open option contracts are closed
each year end and include the resulting calculated capital gain or loss in the
determination of federal taxable income.
See accompanying notes to financial statements 20
<PAGE> 44
================================================================================
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - The Funds require the custodian to hold sufficient
collateral to secure repurchase agreements. To reduce the chance of loss in its
repurchase transactions, the Funds enter into repurchase agreements only with
banks that have more than $1 billion in assets and are creditworthy in the
judgment of Gateway Investment Advisers, L.P. (the Adviser).
2. TRANSACTIONS WITH AFFILIATES
Gateway Investment Advisers, Inc. (GIA) was the investment adviser of the Funds
prior to December 15, 1995. On December 15, 1995, the advisory contracts between
the Funds and GIA were terminated, and new contracts were entered into with the
Adviser. There were no changes in the advisory fee, or the computation thereof,
as a result of the new contracts. The Funds pay the Adviser a monthly management
fee computed at an annual rate of 0.90% of the first $50 million of the average
daily net assets of the respective fund, 0.70% of the next $50 million and 0.60%
of all such assets over $100 million.
If total expenses for any fiscal year (excluding taxes, interest, brokerage
commissions and expenses of an extraordinary nature) exceed 2.00% of Small Cap's
average daily net assets, or 1.50% of Mid Cap's average daily net assets, the
advisory contracts require the Adviser to waive some or all of its advisory fee
as necessary to limit each Fund's expenses to the stated level. For 1995, the
Adviser has agreed to voluntarily waive some or all of its advisory fee if the
Small Cap's expense ratio exceeds 1.50%. Any contractual or voluntary waiver,
however, will not exceed the aggregate advisory fee paid by the Fund for the
applicable year. As a result, for the year ended December 31, 1995, the Adviser
waived advisory fees of $50,766 for Mid Cap and $85,502 for Small Cap.
Additionally for 1995, the Adviser has agreed to reimburse other expenses of Mid
Cap as necessary to limit Mid Cap's expenses to 2.00%, and accordingly
reimbursed $28,245 in expenses.
The Adviser maintains the Funds' accounting records for a monthly fee of $4,000
for each fund. The Adviser also provides shareholder servicing, transfer, and
dividend disbursing agent services for the Trust. The Funds reimburse the
Adviser for the cost to provide these services subject to a minimum monthly fee
of $2,500 and a limitation of 0.20% of average daily net assets.
Each trustee of the Trust who is not affiliated with the Adviser receives an
annual retainer of $3,000, a $500 base fee plus $100 per fund for each meeting
attended, and $200 per fund ($1,000 per fund for the committee chairman) for
each committee meeting attended. The annual retainer and base fee are allocated
among the funds based on the number of shareholders in each fund.
At December 31, 1995, the Adviser controlled, but did not own, 58.1% of Mid
Cap's outstanding shares, and 52.0% of Small Cap's outstanding shares.
3. SECURITIES TRANSACTIONS
For the year ended December 31, 1995, purchases and proceeds from sales of
common stocks are as follows:
<TABLE>
<CAPTION>
MID CAP SMALL CAP
------- ---------
<S> <C> <C>
Purchases of investment securities $ 992,207 $1,909,377
Proceeds from sales of investment securities 3,329,580 4,159,594
</TABLE>
The Funds may write (sell) call options on stocks indices for cash (that is,
"the option premium") to enhance earnings on the portfolio securities. However,
using these contracts limits the opportunity to participate in appreciation of
the underlying portfolio beyond certain upper limits set by the contracts. The
Funds may also buy put options on stock indices. The purchase of put options
involves the risk of loss of all or part of the cash paid for the put options.
The liability recorded upon receipt of written option premiums increases to
offset rises and decreases to offset declines in the market value of the hedged
portfolio. Similarly, the value of purchased puts increases to offset declines
and decreases to offset rises in portfolio value.
4. UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS
Unrealized appreciation (depreciation) of common stocks at December 31, 1995,
based on the cost of investments, is as follows:
<TABLE>
<CAPTION>
MID CAP SMALL CAP
------- ---------
<S> <C> <C>
Gross unrealized appreciation $1,083,690 $1,758,665
Gross unrealized depreciation (383,681) (1,222,987)
---------- ----------
Net unrealized appreciation (depreciation) $ 700,009 $ 535,678
========== ==========
</TABLE>
21
<PAGE> 45
================================================================================
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of the Gateway Mid Cap Index Fund and
Gateway Small Cap Index Fund of The Gateway Trust:
We have audited the accompanying statements of assets and liabilities of the
Gateway Mid Cap Index Fund and Gateway Small Cap Index Fund of THE GATEWAY TRUST
(an Ohio business trust), including the portfolios of investments, as of
December 31, 1995, and the related statements of operations, statements of
changes in net assets and financial highlights for the periods indicated thereon
(see pages 4 to 12 and 14 to 21). These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Gateway Mid Cap Index Fund and Gateway Small Cap Index Fund of The Gateway Trust
as of December 31, 1995, the results of their operations, the changes in their
net assets, and the financial highlights for the periods indicated thereon, in
conformity with generally accepted accounting principles.
Cincinnati, Ohio Arthur Andersen LLP
January 19, 1996
================================================================================
THE GATEWAY TRUST
- --------------------------------------------------------------------------------
Investment Adviser:
Gateway Investment Advisers, L.P.
Shareholder Servicing:
Gateway Investment Advisers, L.P.
Auditors:
Arthur Andersen LLP
Cincinnati, OH
Custodian:
Star Bank, N.A.
Cincinnati, OH
Trustees:
Stefen F. Brueckner
Kenneth A. Drucker
Beverly S. Gordon
John F. Lebor
Walter G. Sall
William H. Schneebeck
Peter W. Thayer
22
<PAGE> 46
[LOGO]
THE GATEWAY TRUST
P.O. BOX 5211
CINCINNATI, OH 45201-5211
(800) 354-6339
MEMBER OF
====================================
100% NO-LOAD(TM) MUTUAL FUND COUNCIL
====================================
<PAGE> 47
February 27, 1996
For generations Cincinnatians have taken great pride in the standard
of living our community provides. This includes the benefits of a healthy
economic base in which our corporations have flourished. These companies have
benefited from a favorable business environment, a highly educated population,
and a geographical location that provides easy access to 70% of the U. S.
population. The Cincinnati Fund was specifically designed to provide these
economic benefits to the investors of the Greater Cincinnati Area.
As the enclosed report shows, the Fund delivered a generous total
return of 35.31% in 1995. This return reflects the drama of rapid advances by
small growth companies like Structural Dynamics Research Corp. with the solid
strength of our larger domestic and multinational companies like Procter &
Gamble.
We are pleased that the Cincinnati Fund's diversified business
portfolio fully participated in the region's exceptional growth in 1995. We
appreciate your trust and confidence and look forward to continuing to help you
reach your investment goals.
Sincerely,
/s/ Walter G. Sall
Walter G. Sall
Chairman
<PAGE> 48
CINCINNATI
---FUND---
P.O. BOX 5211 - CINCINNATI, OHIO 45201-5211
(800) 354-5525
CINCINNATI
---FUND---
ANNUAL REPORT
1995
<PAGE> 49
CINCINNATI FUND
- -----------------Portfolio Manager's Report - December 31, 1995----------------
The Cincinnati Fund had an excellent year in 1995, producing a total return of
35.31%. The average annual total return for the Fund since inception is 29.22%.
On December 29, 1995, the Fund paid a $0.251 per share income dividend and a
$0.038 per share capital gain distribution.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Top Ten Holdings
As of December 31, 1995
- ----------------------------------------------------------------
<S> <C>
Kroger Co. 5.47%
CINergy Corp. 4.89%
Procter & Gamble Co. 4.23%
Cincinnati Bell Inc. 4.12%
Star Banc Corp. 3.44%
General Electric Company 3.43%
Cincinnati Financial Corp. 2.73%
Federated Department Stores, Inc. 2.71%
Provident Bancorp, Inc. 2.65%
AT&T Corporation 2.53%
- ----------------------------------------------------------------
</TABLE>
The stock market, as measured by the Standard and Poor's 500 Stock Index,
posted the strongest calendar year gain since 1975. Local stocks were equally
impressive -- 90% of the stocks included in the Fund posted gains for the year.
These gains were not only derived from both large and small capitalization
stocks, but from many industry sectors, as well. Listed above are the top ten
holdings in the portfolio as of December 31, 1995.
-------------Largest Sector Weightings-------------
Many names from the finance sector populate the list of the top ten holdings. In
fact at 18.45%, the finance sector boasts the largest industry weighting in the
portfolio. If interest rates, particularly short-term, continue to decline, the
profitability of the banking industry should remain strong. The commercial loan
demand in the Cincinnati area remains healthy. Without question, the banking
industry in our area is extremely well managed.
Performance data represents past performance and 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.
- ----------------------------------------------------------------
1 CINCINNATI FUND
<PAGE> 50
CINCINNATI FUND
- -----------------Portfolio Manager's Report - December 31, 1995-----------------
The strong presence of local utility companies in the top ten list is also
reflective of our optimistic view of the Cincinnati area economy. Additionally,
the move to overweight this industry group is based upon our desire to become
more conservative in a stock market environment which appears to be fully
valued. As of December 31, 1995, the utility sector had the second highest
weighting in the Fund.
-------------Portfolio Changes-------------
The fourth quarter of 1995 was noticeably quiet on the restructuring front
after a very active nine months of mergers and acquisitions affected the
Cincinnati Fund's portfolio:
- U. S. Shoe Corporation sold its footwear division to Nine West
Group, its Lenscrafters division to Luxottica Group S.P.A. and its
women's apparel division to a Luxottica-related Italian firm.
- Federated Department Stores, Inc. continued its buying spree with
the acquisition of Broadway Stores on the West Coast, after the
megadeal of acquiring Macy's earlier in the year.
- American Financial Corp., owned by the Lindner family, was merged
into the Lindner-controlled, publicly traded, American Premier
Underwriters to form the newly created American Financial Group,
Inc.
- Thriftway Inc., the local supermarket chain run by Richard Lindner,
was sold to Winn Dixie Stores, Inc. It will be fascinating to watch
Winn Dixie challenge its largest national competitor, Kroger Co.,
right in its foe's backyard.
- Other notable transactions included the nonlocal purchases of The
Future Now and USA Mobile Communications.
- A few of our local companies considered selling or merging; Gibson
Greetings, Inc. decided to sell only its Cleo gift-wrap division,
and Citicasters called off a merger with OmniAmerica Communications
in Cleveland.
- --------------------------------------------------------------------------------
CINCINNATI FUND 2
<PAGE> 51
CINCINNATI FUND
- -----------------Portfolio Manager's Report - December 31, 1995-----------------
As we head into 1996, the financial news hitting Wall Street appears to be
favorable; interest rates are declining, inflation remains in check, and
corporate earnings are growing at a more moderate rate. We are concerned,
however, that much of this good news has already been discounted into the
market. History certainly suggests that 1996 will not match 1995's spectacular
gains. This more cautious view of the market, however, does not diminish our
long-term optimism for the Cincinnati Fund.
All in all, 1995 was a hectic but highly rewarding year for the Cincinnati
Fund. We remain steadfast in our belief that Cincinnati continues to offer its
corporate citizens unique opportunities and excellent conditions to perform. We
appreciate your support and look forward to many more rewarding years!
/s/ J. Patrick Rogers
J. Patrick Rogers, CFA
President
-------------Industry Weightings-------------
<TABLE>
<S> <C>
Utilities 11.5%
Finance 18.5%
Industrial Cyclicals 8.6%
Consumer Durables 5.0%
Consumer Staples 8.7%
Services 11.2%
Retail 10.8%
Health 5.2%
Technology 8.4%
</TABLE>
As a Percentage of Net Assets
- -------------------------------------------------------------------------------
3 CINCINNATI FUND
<PAGE> 52
CINCINNATI FUND
- -----------------Portfolio of Investments - December 31, 1995-----------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- ------ ------------- -----
<S> <C> <C>
UTILITIES 11.54%
2,300 AT&T Corporation $148,781
7,000 Cincinnati Bell Inc. 241,938
9,400 CINergy Corp. 287,288
---------
678,007
---------
FINANCE 18.45%
2,500 American Annuity Group, Inc. 29,688
1,000 American Financial Enterprises, Inc. 22,375
1,300 American Financial Group, Inc. 39,813
600 Banc One Corp. 22,650
2,470 Cincinnati Financial Corp. 160,550
1,700 Fifth Third Bancorp 123,874
700 First Financial Bancorp 24,238
840 Huntington Bancshares Inc. 20,055
1,000 Kentucky Enterprise Bancorp Inc. 27,875
1,000 Manhattan Life Insurance Co. * 4,250
3,300 McDonald & Company Investments, Inc. 59,194
800 Midland Co. 39,300
2,000 Ohio Casualty Corp. 77,000
1,800 PNC Bank Corp. 57,713
3,300 Provident Bancorp, Inc. 155,513
3,400 Star Banc Corp. 202,088
1,000 Suburban Bancorporation, Inc. 18,125
---------
1,084,301
---------
INDUSTRIAL CYCLICALS 8.56%
3,500 AK Steel Holding Corp. 119,656
300 Champion International Corp. 12,581
1,200 Chemed Corporation 46,575
4,500 Cincinnati Milacron, Inc. 117,844
300 Corning Inc. 9,581
600 International Paper Co. 22,688
800 James River Corp. of Virginia 19,150
5,000 LSI Industries Inc. 81,875
300 Monsanto Company 36,750
4,300 Multi-Color Corp. * 11,825
6,000 NS Group Inc. * 15,375
1,000 Zaring Homes, Inc. * 9,125
---------
503,025
---------
</TABLE>
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
CINCINNATI FUND 4
<PAGE> 53
CINCINNATI FUND
- ----------------- Portfolio of Investments - December 31, 1995 -----------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- ------ ------------- -----
<S> <C> <C>
CONSUMER DURABLES 5.04%
3,000 Baldwin Piano & Organ Co. * $ 37,875
1,800 Cintas Corp. 80,550
3,500 Ford Motor Company 101,281
1,100 General Motors Corp. 57,888
600 Hasbro, Inc. 18,525
--------
296,119
--------
CONSUMER STAPLES 8.70%
400 Avon Products, Inc. 30,125
2,500 Chiquita Brands International, Inc. 34,063
1,800 Heinz (H. J.) Co. 59,288
1,800 PepsiCo Inc. 100,463
3,000 Procter & Gamble Co. 248,625
300 Sara Lee Corp. 9,563
1,500 Super Food Services, Inc. 19,688
300 Sysco Corp. 9,731
--------
511,546
--------
SERVICES 11.17%
1,800 Citicasters Inc. 42,075
4,350 Comair Holdings, Inc. 116,363
200 CSX Corp. 9,113
1,300 Delta Air Lines, Inc. 95,794
4,222 Frisch's Restaurants, Inc. 38,266
200 Gannett Co., Inc. 12,288
5,300 Gibson Greetings, Inc. * 85,131
2,000 Jacor Communications Inc. * 34,000
1,800 McDonald's Corp. 80,888
2,300 Scripps (E. W.) Co. 90,563
3,000 Skyline Chili Inc. * 12,188
600 Time Warner, Inc. 22,650
800 Wendy's International Inc. 17,050
--------
656,369
--------
RETAIL 10.79%
5,800 Federated Department Stores, Inc.* 159,138
8,600 Kroger Co. * 321,425
2,200 Mercantile Stores Company, Inc. 101,613
</TABLE>
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
5 CINCINNATI FUND
<PAGE> 54
CINCINNATI FUND
- ----------------- Portfolio of Investments - December 31, 1995 -----------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- ------ ------------- -----
<S> <C> <C>
RETAIL - Continued
1,000 Nine West Group, Inc. * $ 37,500
400 Winn Dixie Stores, Inc. 14,700
----------
634,376
----------
HEALTH 5.16%
3,500 Duramed Pharmaceuticals, Inc. * 52,063
1,300 Johnson & Johnson 111,313
4,522 Meridian Diagnostics Inc. 50,025
2,000 Omnicare, Inc. 89,625
----------
303,026
----------
TECHNOLOGY 8.41%
4,500 Cincinnati Microwave Inc. * 19,969
2,800 General Electric Company 201,425
800 International Business Machines Corp. 73,200
3,000 International Lottery, Inc. * 24,938
300 Litton Industries, Inc. * 13,350
3,300 Pomeroy Computer Resources, Inc. * 44,550
4,000 Structural Dynamics Research Corp. * 117,000
----------
494,432
----------
TOTAL COMMON STOCKS 87.82% 5,161,201
(cost $3,908,846)
REPURCHASE AGREEMENT 12.08%
5.3% repurchase agreement dated December 29, 1995
with Star Bank, N.A., due January 2, 1996
(repurchase proceeds $710,418),
collateralized by $750,000
6% GNMA Pool #8974, maturity May 20, 2022
(market value $768,281) 710,000
OTHER ASSETS AND LIABILITIES, NET 0.10% 5,657
----------
NET ASSETS 100% $5,876,858
==========
<FN>
*Denotes a non-income producing security.
</TABLE>
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
CINCINNATI FUND 6
<PAGE> 55
CINCINNATI FUND
- ------------Statement of Assets and Liabilities - December 31, 1995------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Common stocks, at value (original cost $3,908,846) $5,161,201
Repurchase agreement 710,000
Dividends receivable 8,876
Receivable for fund shares sold 7,989
Cash 21
Other assets 2,055
----------
5,890,142
----------
LIABILITIES:
Dividends payable to shareholders 2,721
Other accrued expenses and liabilities 10,563
----------
13,284
----------
NET ASSETS $5,876,858
==========
NET ASSETS CONSIST OF:
Paid-in capital applicable to 448,088 shares outstanding
(unlimited number of shares authorized, no par value) $4,622,637
Accumulated realized gain, net 1,866
Unrealized appreciation, net 1,252,355
----------
$5,876,858
==========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $ 13.12
==========
</TABLE>
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
7 CINCINNATI FUND
<PAGE> 56
CINCINNATI FUND
- --------------------------- Statement of Operations --------------------------
For Year Ended December 31, 1995
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Dividend income $ 76,708
Interest income 37,820
-----------
114,528
-----------
EXPENSES:
Transfer agent and accounting fees 78,000
Investment advisory and management fees 23,429
Reports to shareholders 13,000
Professional fees 12,927
Custodian fees 8,891
Trustees' fees 6,155
Registration fees 2,423
Other expenses 4,832
-----------
149,657
Fees waived and expenses reimbursed under contract (55,581)
Expenses reimbursed voluntarily (1,139)
-----------
92,937
-----------
NET INVESTMENT INCOME 21,591
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gains 96,868
Change in net unrealized appreciation 1,284,165
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 1,381,033
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,402,624
===========
</TABLE>
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
CINCINNATI FUND 8
<PAGE> 57
CINCINNATI FUND
- ---------------------- Statement of Changes in Net Assets ----------------------
<TABLE>
<CAPTION>
For the Period from
Year Ended November 7, 1994 to
December 31, 1995 December 31, 1994
----------------- -------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 21,591 $ 10,003
Net realized gain on investments 96,868 --
Change in unrealized appreciation (depreciation) of investments 1,284,165 (31,810)
----------- -----------
Net increase (decrease) in net assets resulting from operations 1,402,624 (21,807)
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (31,594) --
From net realized gain on investments (95,002) --
----------- -----------
Decrease in net assets from dividends and distributions (126,596) --
----------- -----------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 1,642,766 3,247,020
Net asset value of shares issued in reinvestment of
dividends and distributions 123,748 --
Payments for shares redeemed (390,897) --
----------- -----------
Net increase in net assets from fund share transactions 1,375,617 3,247,020
----------- -----------
NET INCREASE IN NET ASSETS 2,651,645 3,247,020
NET ASSETS:
Beginning of period 3,225,213 --
----------- -----------
End of period, including undistributed
net investment income of $0 and $10,003, respectively $ 5,876,858 $ 3,225,213
=========== ===========
FUND SHARE TRANSACTIONS:
Shares sold 144,900 325,527
Shares issued in reinvestment of dividends and distributions 9,432 --
Less shares redeemed (31,771) --
----------- -----------
NET INCREASE IN SHARES OUTSTANDING 122,561 325,527
=========== ===========
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to financial statements
9 CINCINNATI FUND
<PAGE> 58
CINCINNATI FUND
- ------------------------------Financial Highlights------------------------------
<TABLE>
<CAPTION>
For the Period from
Year Ended November 7, 1994 to
December 31, 1995 (3) December 31, 1994
--------------------- -----------------
<S> <C> <C>
Net asset value, beginning of period $ 9.91 $10.00
--------- ------
Net investment income 0.04 0.03
Net gains (losses) on securities 3.46 (0.12)
--------- ------
Total from investment operations 3.50 (0.09)
--------- ------
Dividends from net investment income (0.07) 0.00
Distributions from capital gains (0.22) 0.00
--------- ------
Total distributions (0.29) 0.00
--------- ------
Net asset value, end of period $ 13.12 $ 9.91
========= ======
TOTAL RETURN 35.31% (0.90%)(2)
Net assets, end of period (millions) $ 5.88 $ 3.23
Ratio of net expenses to average net assets (1) 1.98% 1.96%
Ratio of net investment income to average net
assets (1) 0.46% 2.24%
Portfolio turnover rate 9% 0%(2)
</TABLE>
[FN]
(1) The ratio of net expenses to average net assets would have increased
and the ratio of net investment income to average net assets would have
decreased by 0.02% in 1995 and 0.04% in 1994 had the Adviser not
voluntarily reimbursed expenses. Ratios are annualized in periods less
than a year.
(2) Not annualized.
(3) On December 15, 1995, Gateway Investment Advisers, L.P. became
investment adviser of the Fund.
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
CINCINNATI FUND 10
<PAGE> 59
CINCINNATI FUND
- ----------------Notes to Financial Statements - December 31, 1995---------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Gateway Trust (the Trust) is a family of four no-load diversified mutual
funds. The financial statements of the Cincinnati Fund (the Fund) are included
in this report. The Fund commenced operation on November 7, 1994. Gateway Index
Plus Fund, Gateway Mid Cap Index Fund, and Gateway Small Cap Index Fund are
included in separate annual reports. The Trust is registered under the
Investment Company Act of 1940.
The following is a summary of the Fund's significant accounting policies.
INVESTMENTS VALUATION - The Fund normally values common stocks at the average
of the closing bid and asked quotations. Other securities for which market
quotations are not readily available are valued at fair value as determined in
good faith under procedures adopted by the board of trustees.
INVESTMENT TRANSACTIONS, INVESTMENT INCOME AND EXPENSES - Investment
transactions are recorded on the trade date. Dividend income is recorded on the
ex-dividend date, and interest income is accrued daily. Capital gains and losses
are calculated on an identified cost basis. Expenses that cannot be directly
associated with a specific Trust fund are allocated under policies set by the
board of trustees.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS TO SHAREHOLDERS - Distributions from
net investment income and net realized capital gains are recorded on the
ex-dividend date and are declared and paid annually.
FEDERAL INCOME TAXES - The Fund intends to comply with the provisions of
Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and distribute substantially all of its taxable income to
shareholders. Based on this policy, the Fund makes no provision for income
taxes. The cost of investments is the same for financial reporting and tax
purposes.
REPURCHASE AGREEMENTS - The Fund requires the custodian to hold sufficient
collateral to secure repurchase agreements. To reduce the chance of loss in its
repurchase transactions, the Fund enters into repurchase agreements only with
banks that have more than $1 billion in assets and are creditworthy in the
judgment of Gateway Investment Advisers, L.P. (the Adviser).
- --------------------------------------------------------------------------------
11 CINCINNATI FUND
<PAGE> 60
CINCINNATI FUND
- -------------- Notes to Financial Statements - December 31, 1995 ---------------
2. TRANSACTIONS WITH AFFILIATES
Gateway Investment Advisers, Inc. (GIA) was the investment adviser of the Fund
prior to December 15, 1995. On December 15, 1995, the advisory contract between
the Fund and GIA was terminated, and a new contract was entered into with the
Adviser. There were no changes in the advisory fee, or the computation thereof,
as a result of the new contract. The Fund pays the Adviser a monthly management
fee computed at an annual rate of 0.50% of its average daily net assets.
If total expenses for any fiscal year (excluding taxes, interest, brokerage
commissions and expenses of an extraordinary nature) exceed 2.00% of average
daily net assets, the Adviser has agreed to reduce its fee (and for 1995
reimburse other expenses) as necessary to limit the Fund's expenses to this
level. As a result for the year ended December 31, 1995, the Adviser waived its
entire management fees of $23,429 and reimbursed $33,291 in other expenses.
The Adviser maintains the Fund's accounting records for a monthly fee of
$4,000. The Adviser also provides shareholder servicing, transfer, and dividend
disbursing agent services for the Trust. The Fund reimburses the Adviser for the
cost to provide these services, subject to a minimum monthly fee of $2,500 and a
limitation of 0.20% of average daily net assets.
Each trustee of the Trust who is not affiliated with the Adviser receives an
annual retainer of $3,000, a $500 base fee plus $100 per fund for each meeting
attended, and $200 per fund ($1,000 for the committee chairman) for each
committee meeting attended. The annual retainer and base fee are allocated among
the funds based on the number of shareholders in each fund.
At December 31, 1995, the Adviser controlled, but did not own, 17.7% of the
outstanding shares of the Fund.
3. SECURITIES TRANSACTIONS
For the year ended December 31, 1995, purchases of investment securities
(excluding short-term investments) totaled $1,522,240, and proceeds from sales
totaled $367,444.
4. UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS
At December 31, 1995, gross unrealized appreciation of common stocks totaled
$1,294,481 and gross unrealized depreciation totaled ($42,126), based on the
cost of investments.
- --------------------------------------------------------------------------------
CINCINNATI FUND 12
<PAGE> 61
CINCINNATI FUND
- ------------------- Report of Independent Public Accountants -------------------
To the Shareholders and Board of Trustees of the Cincinnati Fund of The Gateway
Trust:
We have audited the accompanying statement of assets and liabilities of the
Cincinnati Fund of THE GATEWAY TRUST (an Ohio business trust), including the
portfolio of investments, as of December 31, 1995, and the related statement of
operations, statements of changes in net assets and financial highlights for the
periods indicated thereon. These financial statements and financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Cincinnati Fund of The Gateway Trust as of December 31, 1995, the results of its
operations, the changes in its net assets, and the financial highlights for the
periods indicated thereon, in conformity with generally accepted accounting
principles.
Cincinnati, Ohio Arthur Andersen LLP
January 19, 1996
- --------------------------------------------------------------------------------
13 CINCINNATI FUND
<PAGE> 62
RISK/REWARD CHART - CINCINNATI FUND
11/7/94 - 12/31/95
- ------------------
<TABLE>
<CAPTION>
Risk Return
---- ------
<S> <C> <C>
US T-bills (30 day) 0.12% 5.29%
Cincinnati Fund 5.88% 29.22%
S&P 500 Stock Index 7.32% 29.50%
</TABLE>
The above chart shows that, in general, more risk must be taken to earn
higher total returns. The chart shows 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 Cincinnati Fund. The line connecting Treasury bills and the S&P 500 Index
shows all the possible outcomes if an investment had been allocated between
these two choices in varying positions. When the Cincinnati 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. If the point appears below the line, it shows the reverse.
The succeeding 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.
<PAGE> 63
CINCINNATI FUND
Professional Services and Trustees
Investment Adviser:
Gateway Investment Advisers, L.P.
Shareholder Servicing:
Gateway Investment Advisers, L.P.
Auditors:
Arthur Andersen LLP
Cincinnati, OH
Custodian:
Star Bank, N.A.
Cincinnati, OH
Trustees:
Stefen F. Brueckner
Kenneth A. Drucker
Beverly S. Gordon
John F. Lebor
Walter G. Sall
William H. Schneebeck
Peter W. Thayer
- -------------------------------------------------------------------------------
CINCINNATI FUND 14
