<PAGE> 1
[insert Statue of Liberty logo]
GATEWAY
INDEX PLUS FUND
SEMI-ANNUAL
REPORT
1996
MEMBER OF 100% NO-LOAD MUTUAL FUND COUNCIL
[insert Statue of Liberty logo]
The Gateway Trust
P. O. Box 5211
Cincinnati, OH 45201-5211
(800) 354-6339
<PAGE> 2
GATEWAY INDEX PLUS FUND
Highlights at June 30, 1996
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
------------------------------------------------------
Past One Three Five Ten Since Inception Dividends Price
Quarter Year Years Years Years on 12/7/77 Year to Date Per Share
------- ---- ----- ----- ----- --------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gateway Index Plus 3.03% 9.63% 8.48% 8.61% 9.55% 10.35% $0.10 $17.62
S&P 500 4.49 26.00 17.22 15.73 13.78
Lehman Gov't/
Corp. Bond 0.47 4.66 5.16 8.48 8.41
U. S. Inflation (CPI) 0.67 2.79 2.77 2.88 3.66
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-------------------------------------------------------
Past One Three Five Ten Since Inception
Quarter Year Years Years Years on 12/7/77
------- ---- ----- ----- ------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Gateway Index Plus 3.03% 9.63% 27.65% 51.10% 149.06% 518.35%
S&P 500 4.49 26.00 61.08 107.59 263.57
Lehman Gov't/
Corp. Bond 0.47 4.66 16.29 50.24 124.25
U. S. Inflation (CPI) 0.67 2.79 8.55 15.26 43.25
</TABLE>
Performance data throughout this report represents past performance. The average
annual total return figures assume the reinvestment of dividends. 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.
This report must be preceded or accompanied by a current prospectus.
1
<PAGE> 3
GATEWAY INDEX PLUS FUND
Letter from the Chairman
Dear Shareholder:
The stock market responded favorably to good corporate earnings in the first
half of 1996. In this optimistic environment, the Index Plus Fund portfolio
continued to make progress.
Consistent with our reduced-risk philosophy of management, the Fund utilized
hedging strategies throughout the first half of 1996. Hedging with call options
produces cash flows in exchange for the capital appreciation of the Fund's
stocks. These cash flows also serve to reduce declines during periods of
uncertainty. Hedging with put options serves as a safety net to help protect
assets in the event of a significant decline in the market in a short period of
time.
We are pleased to report that premium levels on call options have increased,
particularly during the second quarter. High premiums lead to more effective
hedging and better risk/adjusted rates of return. In the co-portfolio managers'
report on the following pages, Pete Thayer and Patrick Rogers explain the
benefits of hedging in greater detail. In the second half of 1996, Gateway's
management believes that its hedged portfolios are positioned to take full
advantage of the higher levels of premium cash flows that currently prevail.
Finally, I take great pleasure in announcing the appointment of R. S. Harrison
to The Gateway Trust Board of Trustees. Mr. Harrison is chairman of Baldwin
Piano & Organ Co. and serves as a director of several corporations. He brings a
wealth of financial and managerial skills with him and, on behalf of fellow
boardmembers and shareholders, I welcome him to the Board of Trustees.
Cordially,
/s/ Walter G. Sall
Walter G. Sall
Chairman
2
<PAGE> 4
GATEWAY INDEX PLUS FUND
Co-Portfolio Managers' Report
The Gateway Index Plus Fund's total return for the twelve months ended June 30,
1996, was 9.63%. This compares to a total return of 4.66% for the Lehman
Government/Corporate Bond Index and 26.00% for the Standard and Poor's 500 Stock
Index over the same period.
For the six months ended June 30, 1996, the Gateway Index Plus Fund delivered a
total return of 4.80%. Other investment alternatives with a low risk profile
similar to the Fund did not produce competitive gains over the same time period.
The Lehman Government/ Corporate Bond Index declined by 1.88%; five-year U. S.
Treasury notes declined by 1.79% over this same time period.
The following two charts analyze the different components of the Index Plus
Fund's total return for the first two quarters of 1996, as well as for calendar
years 1990 through 1995.
GATEWAY INDEX PLUS FUND
1996
<TABLE>
<CAPTION>
1ST QTR. 2ND QTR.
-------- --------
<S> <C> <C>
CONTRIBUTION OF STOCKS
Performance of Stocks 6.23% 4.05%
Dividends Earned 0.54 0.51
INTEREST EARNED 0.02 0.06
CONTRIBUTIONS OF OPTIONS
Effect of Options: Calls (4.16) (0.48)
Effect of Options: Puts (0.58) (0.78)
EFFECT OF FEES
Fund Expenses (0.29) (0.29)
Brokerage Commissions (0.04) (0.04)
----- -----
TOTAL RETURN 1.72% 3.03%
---- ----
</TABLE>
3
<PAGE> 5
GATEWAY INDEX PLUS FUND
Co-Portfolio Managers' Reports
GATEWAY INDEX PLUS FUND
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
CONTRIBUTION OF STOCKS
Performance of Stocks (5.74%) 24.18% 2.87% 8.27% (0.19%) 33.02%
Dividends Earned 3.63 3.25 2.90 2.51 2.80 2.53
INTEREST EARNED 0.29 0.33 0.19 0.07 0.03 0.17
CONTRIBUTIONS OF
OPTIONS
Effect of Options: Calls 8.85 (7.66) 4.24 1.48 4.19 (21.48)
Effect of Options: Puts 4.94 (0.72) (3.58) (3.68) 0.00 (1.91)
EFFECT OF FEES
Fund Expenses (1.33) (1.22) (1.11) (1.11) (1.21) (1.19)
Brokerage Commissions (0.32) (0.36) (0.36) (0.14) (0.05) (0.10)
----- ----- ----- ----- ----- -----
TOTAL RETURN 10.32% 17.80% 5.15% 7.40% 5.57% 11.04%
----- ----- ----- ----- ----- -----
</TABLE>
STOCKS: The first two quarters of 1996 have remained quite favorable for stock
investments. Our blue chip portfolio of one hundred stocks participated in this
favorable environment.
DIVIDENDS EARNED: The declining trend in dividend yield continued thus far in
1996. This is not due to corporations cutting their dividend payments; rather,
it is a result of underlying stock prices rising faster than dividend payments.
As stock prices rise, the dividend yield, expressed as a percentage of the stock
price, has declined.
INTEREST EARNED: As is normally the case, the Index Plus Fund is nearly always
100% invested in stocks. Therefore, the interest earned on cash in the Fund is
quite low.
4
<PAGE> 6
GATEWAY INDEX PLUS FUND
Co-Portfolio Managers' Reports
EFFECT OF CALL OPTIONS: The Fund always sells index call options on its entire
portfolio of stocks. By selling call options, the Index Plus Fund receives a
cash flow in exchange for any price appreciation on our one hundred stocks.
Recently this cash flow has risen quite dramatically to approximately 15% to 16%
annualized, or 3.75% to 4.00% per quarter. In down, flat, or moderately-rising
stock markets, the call option component will add to the total return of the
Fund (e.g., 1990, 1992, 1993, 1994). If stock prices rise by more than this cash
flow, then the call option component will take away from performance (e.g.,
1991, 1995, and year-to-date 1996). This combination of selling call options and
owning stocks produces a fairly consistent pattern of total returns and,
therefore, reduces overall risk.
EFFECT OF PUT OPTIONS: As we have stated in the past, buying put options on our
portfolio of stocks is similar to purchasing an insurance policy on your home --
it serves as a measure of protection from a significant decline in a short
period of time. Since our asset (stocks) did not decline over the past two
quarters, the put option protection was a "cost" to the Fund. Remember, we do
not buy put options with the hope that the market will go down any more than the
homeowner purchases a fire insurance policy with the wish that his house will
burn down. Rather, at times of high risk, we want put option contracts in place
to provide some protection against a major decline in value.
FUND EXPENSES: The expense ratio during the first six months of the year,
including all management fees, was 0.58%.
BROKERAGE COMMISSIONS: Since the Index Plus Fund "buys and holds" the stocks in
the portfolio, the Fund has extremely low turnover in its holdings. A great
benefit to this investment strategy is its low commission cost, as demonstrated
in the first half of 1996.
5
<PAGE> 7
GATEWAY INDEX PLUS FUND
Co-Portfolio Managers' Report
As we reported in the First Quarter Report '96, the risk/reward profile has
improved dramatically for the Index Plus Fund. Currently, selling call options,
in addition to receiving stock dividends, is producing a higher cash flow than
has been seen over the past four years. This generous cash flow suggests that
the Index Plus Fund provides not only an opportunity for improved total returns,
but also reduces the risk of owning stocks. Should the stock market begin to
change course, this cash flow can serve to replace capital that would otherwise
decline.
Within the confines of a limited exposure to risk, the current combination of
high cash flows from calls and protection from puts provides an excellent profit
opportunity to shareholders of the Index Plus Fund. We look forward to the
second half of 1996 with enthusiasm!
/s/ J. Patrick Rogers
J. Patrick Rogers, CFA
Co-Portfolio Manager
/s/ Peter W. Thayer
Peter W. Thayer, CFA
Co-Portfolio Manager
6
<PAGE> 8
GATEWAY INDEX PLUS FUND
Portfolio of Investments - June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Shares Common Stocks Value
- ------ ------------- -----
<S> <C> <C>
UTILITIES 10.86%
14,900 American Electric Power Co. $ 635,113
44,400 Ameritech 2,636,250
128,500 AT&T Corporation 7,983,063
35,000 Bell Atlantic Corp. 2,231,250
18,200 Entergy Corp. 517,563
55,100 MCI Communications Corp. 1,408,494
35,000 Nynex Corporation 1,662,500
53,600 Southern Co. 1,316,550
17,200 UNICOM Corp. 479,450
-----------
18,870,233
-----------
ENERGY 11.80%
39,700 Amoco Corp. 2,873,288
12,900 Atlantic Richfield Co. 1,528,650
11,600 Baker Hughes, Inc. 382,075
8,500 Coastal Corp. 354,875
99,300 Exxon Corp. 8,632,894
9,300 Halliburton Co. 516,731
31,500 Mobil Corp. 3,531,938
25,500 Occidental Petroleum Corp. 632,719
19,400 Schlumberger Ltd. 1,635,663
8,300 Williams Companies 410,850
-----------
20,499,683
-----------
FINANCE 8.56%
38,600 American Express 1,720,113
16,700 American General Corp. 612,681
37,900 American International Group, Inc. 3,735,519
29,300 BankAmerica Corp. 2,217,644
6,100 CIGNA Corp. 718,275
38,900 Citicorp 3,214,113
25,300 First Chicago NBD Corp. 991,444
11,100 Great Western Financial Corp. 266,400
9,400 ITT Hartford Group Inc. 499,963
13,700 Merrill Lynch & Co. 892,213
-----------
14,868,365
-----------
</TABLE>
See accompanying notes to financial statements
7
<PAGE> 9
GATEWAY INDEX PLUS FUND
Portfolio of Investments - June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Shares Common Stocks Value
- ------ ------------- -----
<S> <C> <C>
INDUSTRIAL CYCLICALS 15.09%
14,100 Aluminum Company of America $ 809,869
9,500 Bethlehem Steel Corporation * 112,219
7,000 Black & Decker Manufacturing Corp. 269,500
27,700 Boeing Company 2,415,094
3,900 Boise Cascade Corp. 143,081
8,100 Brunswick Corp. 162,000
7,700 Champion International Corporation 320,513
20,000 Dow Chemical Company 1,520,000
44,800 DuPont E.I. de Nemours 3,544,800
27,700 Eastman Kodak Company 2,151,944
6,800 Fluor Corp. 444,125
5,100 General Dynamics Corp. 316,519
40,800 Hewlett Packard Company 4,062,150
11,700 Homestake Mining Corp. 199,631
9,000 International Flavors & Fragrances, Inc. 428,063
23,900 International Paper Company 882,806
33,400 Minnesota Mining and Manufacturing 2,302,513
47,300 Monsanto Company 1,534,294
3,600 Polaroid Corp. 164,475
17,400 Rockwell International Corp. 996,150
4,700 Teledyne, Inc. 169,788
14,500 Unisys Corp. * 102,406
9,700 United Technologies Corp. 1,115,500
15,900 Weyerhauser Co. 675,750
25,900 Xerox Corp. 1,384,031
-----------
26,227,221
-----------
CONSUMER DURABLES 4.64%
29,900 Chrysler Corporation 1,857,538
94,000 Ford Motor Company 3,043,250
60,500 General Motors Corp. 3,168,688
-----------
8,069,476
-----------
</TABLE>
See accompanying notes to financial statements
8
<PAGE> 10
GATEWAY INDEX PLUS FUND
Portfolio of Investments - June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Shares Common Stocks Value
- ------ ------------- -----
<S> <C> <C>
CONSUMER STAPLES 9.85%
10,700 Avon Products, Inc. $ 482,838
199,600 Coca-Cola Co. 9,767,925
11,700 Colgate Palmolive Company 992,306
29,600 Heinz (H. J.) Co. 899,100
125,300 PepsiCo, Inc. 4,440,319
8,600 Ralston Purina Co. 552,550
-----------
17,135,038
-----------
SERVICES 5.08%
12,200 Burlington Northern, Inc. 986,675
4,200 Delta Air Lines, Inc. 348,338
4,500 Federal Express * 369,000
8,300 Harrah's Entertainment, Inc. * 234,475
56,000 McDonald's Corp. 2,614,500
10,200 Norfolk Southern Corp. 864,450
54,200 Walt Disney Productions 3,404,438
-----------
8,821,876
-----------
RETAIL 5.08%
37,400 K-Mart Corp. * 460,488
20,000 May Department Stores Company 875,000
31,400 Sears, Roebuck & Company 1,528,788
4,800 Tandy Corp. 227,400
21,700 The Limited, Inc. 465,194
21,900 Toys R Us * 622,781
183,400 Wal-Mart Stores, Inc. 4,642,313
-----------
8,821,964
-----------
HEALTH 11.64%
21,700 Baxter International 1,025,325
40,200 Bristol-Myers Squibb Company 3,612,975
35,800 Columbia Healthcare Corp. 1,913,063
106,600 Johnson & Johnson 5,283,363
6,000 Mallinckrodt Group, Inc. 233,250
98,200 Merck & Company 6,346,175
40,700 Pharmacia & Upjohn 1,806,063
-----------
20,220,214
-----------
</TABLE>
See accompanying notes to financial statements
9
<PAGE> 11
GATEWAY INDEX PLUS FUND
Portfolio of Investments - June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Shares Common Stocks Value
- ------ ------------- -----
<S> <C> <C>
TECHNOLOGY 17.84%
17,400 AMP, Inc. $ 698,175
5,500 Ceridian Corporation * 278,094
44,900 Cisco Systems Inc. * 2,545,269
4,500 Computer Sciences Corp. * 336,094
12,200 Digital Equipment Corp. * 549,000
133,000 General Electric Company 11,496,169
3,100 Harris Corp. 188,713
10,100 Honeywell, Inc. 549,819
65,700 Intel Corporation 4,824,844
43,500 International Business Machines Corp. 4,309,219
11,000 National Semiconductor Corp. * 171,188
20,600 Northern Telecom Ltd. 1,121,413
52,350 Oracle Corporation * 2,064,553
19,100 Raytheon Company 988,425
2,600 Tekronix, Inc. 116,188
15,300 Texas Instruments, Inc. 764,044
------------
31,001,207
------------
TOTAL COMMON STOCKS 100.44% 174,535,277
(cost $119,254,441) ------------
</TABLE>
See accompanying notes to financial statements
10
<PAGE> 12
GATEWAY INDEX PLUS FUND
Portfolio of Investments - June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Contracts Value
- --------- -----
<S> <C> <C>
PUT OPTION ON THE STANDARD & POOR'S 100 STOCK INDEX 0.12%
1,500 expiring August 16, 1996 at 590 $ 210,945
(cost $642,750)
REPURCHASE AGREEMENT 2.95%
5% repurchase agreement dated June 28, 1996 with Star
Bank, N.A., due July 1, 1996 (repurchase proceeds
$5,124,134), collateralized by $5,440,000
6% GNMA Pool #8974, maturity May 20, 2022
(market value $5,508,000) 5,122,000
------------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENT 103.51% 179,868,222
------------
CALL OPTIONS ON THE STANDARD & POOR'S 100 STOCK INDEX **
(305) expiring July 19, 1996 at 620 (960,750)
(410) expiring July 19, 1996 at 630 (945,563)
(204) expiring July 19, 1996 at 650 (169,575)
(194) expiring August 16, 1996 at 640 (383,150)
(286) expiring August 16, 1996 at 650 (378,950)
(97) expiring September 16, 1996 at 650 (178,238)
(599) expiring September 20, 1996 at 630 (1,924,286)
(599) expiring September 20, 1996 at 640 (1,504,988)
------------
TOTAL CALL OPTIONS OUTSTANDING (3.71%) (6,445,500)
(premiums received $6,157,603)
OTHER ASSETS AND LIABILITIES, NET 0.20% 344,488
------------
NET ASSETS 100% $173,767,210
============
</TABLE>
* Denotes a non-income producing security.
** The aggregate value of investments that covers
outstanding call options is $174,535,277.
See accompanying notes to financial statements
11
<PAGE> 13
GATEWAY INDEX PLUS FUND
Statement of Assets and Liabilities - June 30, 1996 (unaudited)
<TABLE>
<S> <C>
ASSETS:
Common stocks, at value (original cost $119,254,441) $ 174,535,277
Put options, at value (original cost $642,750) 210,945
Repurchase agreement 5,122,000
Dividend and interest receivable 275,910
Receivable for fund shares sold 230,449
Cash 985
Other assets 53,690
-------------
180,429,256
-------------
LIABILITIES:
Call options outstanding, at value
(premiums received $6,157,603) 6,445,500
Payable for fund shares redeemed 86,354
Dividends payable to shareholders 78,042
Other accrued expenses and liabilities 52,150
-------------
6,662,046
-------------
NET ASSETS $ 173,767,210
=============
NET ASSETS CONSIST OF:
Paid-in capital applicable to 9,859,347 shares outstanding
(unlimited number of shares authorized, no par value) $ 141,738,391
Accumulated realized loss, net (22,532,315)
Unrealized appreciation, net 54,561,134
-------------
$ 173,767,210
=============
NET ASSET VALUE, OFFERING, AND REDEMPTION
PRICE PER SHARE $ 17.62
=============
</TABLE>
See accompanying notes to financial statements
12
<PAGE> 14
GATEWAY INDEX PLUS FUND
Statement of Operations - For the Six Months Ended June 30, 1996 (unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income $ 1,852,435
Interest income 140,556
------------
1,992,991
------------
EXPENSES:
Investment advisory and management fees 624,356
Transfer agent and accounting fees 196,775
Reports to shareholders 64,886
Professional fees 41,542
Trustees' fees 14,415
Registration fees 12,133
Custodian fees 9,891
Other expenses 43,158
------------
1,007,156
------------
NET INVESTMENT INCOME 985,835
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on investments:
Securities 12,876,804
Call options expired and closed (8,673,249)
Put options expired and closed (2,204,087)
------------
Net realized gain on investments 1,999,468
------------
Change in unrealized appreciation (depreciation) of investments:
Securities 4,958,211
Call options 345,156
Put options (5,014)
------------
Change in net unrealized appreciation (depreciation) of investments 5,298,353
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 7,297,821
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 8,283,656
============
</TABLE>
See accompanying notes to financial statements
13
<PAGE> 15
GATEWAY INDEX PLUS FUND
Statements of Changes in Net Assets (unaudited)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 985,835 $ 2,626,376
Net realized gain (loss) on investments 1,999,468 (23,126,218)
Change in unrealized appreciation (depreciation) of investments 5,298,353 38,629,096
------------- -------------
Net increase in net assets resulting from operations 8,283,656 18,129,254
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (994,199) (2,626,376)
In excess of realized gains on investments -- (249,721)
------------- -------------
Decrease in net assets from dividends and distributions (994,199) (2,876,097)
------------- -------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 34,944,688 38,274,968
Net asset value of shares issued in reinvestment of
dividends and distributions 864,852 2,637,064
Payments for shares redeemed (45,551,439) (44,596,352)
------------- -------------
Net decrease in net assets from fund shares transactions (9,741,899) (3,684,320)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS (2,452,442) 11,568,837
NET ASSETS:
Beginning of period 176,219,652 164,650,815
------------- -------------
End of period $ 173,767,210 $ 176,219,652
============= =============
FUND SHARE TRANSACTIONS:
Shares sold 2,019,818 2,357,484
Shares issued in reinvestment of dividends and distributions 49,787 160,498
Less shares redeemed (2,633,229) (2,733,507)
------------- -------------
NET DECREASE IN SHARES OUTSTANDING (563,624) (215,525)
============= =============
</TABLE>
See accompanying notes to financial statements
14
<PAGE> 16
GATEWAY INDEX PLUS FUND
Financial Highlights (unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year ended December 31,
1996 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.91 $ 15.48 $ 15.85 $ 15.51 $ 15.24 $13.64
------- ------- ------- ------- ------- ------
Net investment income 0.10 0.24 0.26 0.26 0.27 0.31
Net gains or losses on securities 0.71 1.46 0.61 0.88 0.51 2.10
------- ------- ------- ------- ------- ------
Total from investment operations 0.81 1.70 0.87 1.14 0.78 2.41
------- ------- ------- ------- ------- ------
Dividends from net investment income (0.10) (0.24) (0.27) (0.26) (0.28) (0.30)
Distributions from capital gains 0.00 0.00 (0.86) (0.47) (0.23) (0.51)
Distributions in excess of realized
capital gains 0.00 (0.03) (0.11) (0.07) 0.00 0.00
------- ------- ------- ------- ------- ------
Total distributions (0.10) (0.27) (1.24) (0.80) (0.51) (0.81)
------- ------- ------- ------- ------- ------
Net asset value, end of period $ 17.62 $ 16.91 $ 15.48 $ 15.85 $ 15.51 $15.24
------- ------- ------- ------- ------- ------
TOTAL RETURN 4.80%(1) 11.04% 5.57% 7.40% 5.15% 17.80%
Net assets, end of period (millions) $173.77 $176.22 $164.65 $207.18 $212.95 $81.37
Ratio of expenses to average net assets 1.15%(2) 1.19% 1.21% 1.11% 1.11% 1.22%
Ratio of net investment income to average
net assets 1.12%(2) 1.51% 1.54% 1.58% 1.96% 2.17%
Portfolio turnover rate 10%(1) 5% 4% 17% 15% 31%
Average commission per share (3) $ 0.03 n/a n/a n/a n/a n/a
</TABLE>
(1) Not annualized.
(2) Annualized.
(3) Pursuant to new reporting requirements, average commission per share is
presented for 1996.
See accompanying notes to financial statements
15
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 (unaudited)
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 Cincinnati Fund are included in separate semi-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 and option
contracts (both purchased and written) 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 - 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 the
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.
16
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 (unaudited)
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 June 30, 1996, the Adviser held in a fiduciary capacity 8.10% of the
outstanding shares of the Fund.
3. SECURITIES TRANSACTIONS
For the six months ended June 30, 1996, purchases of investment securities
(excluding short-term investments) totaled $18,239,424 and proceeds from sales
totaled $38,817,948.
The Fund may write (sell) call options on stock indexes 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 indexes. 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 six months ended June
30, 1996, transactions in written options were as follows:
Number of Contracts Premiums
------------------- --------
Outstanding at December 31, 1995 3,044 $ 5,616,247
Options written 8,790 16,000,199
Options exercised (9,140) (15,458,843)
------ -----------
Outstanding at June 30, 1996 2,694 $ 6,157,603
====== ============
4. UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS
Gross unrealized appreciation of common stock totaled $56,692,981 and
depreciation totaled ($1,412,145) at June 30, 1996, based on the cost of
investments.
17
<PAGE> 19
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
R. S. Harrison
John F. Lebor
Walter G. Sall
William H. Schneebeck
Peter W. Thayer
18
<PAGE> 20
RISK/REWARD CHART
TEN YEARS
6/30/86 to 6/30/96
<TABLE>
<CAPTION>
Risk Return
---- ------
<S> <C> <C>
U. S. Treasury bills (30 day) 0.50 5.34%
Gateway Index Plus Fund 7.90 9.55%
S&P 500 Stock Index 14.05 13.78%
</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 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.
<PAGE> 21
August 6, 1996
Dear :
We are pleased to enclose your Semi-Annual Report on the Index Plus Fund. The
report provides portfolio values as of June 30, 1996, and comparative rates of
return for the twelve-month, six-month, and three-month periods ending at
mid-year. The second quarter of 1996 marks the eighth consecutive quarter of
gains from your fund.
Please focus attention on the Co-Portfolio Managers' Report on pages 3 through
6. Pete Thayer and Patrick Rogers, co-portfolio managers, discuss stock market
returns, the effects of risk-reducing hedging transactions, dividend
distributions, and fund operating expenses. It is the combination of these
factors that gives the Index Plus Fund the low risk profile that has been its
trademark for many years.
On behalf of the entire staff at Gateway, we appreciate the confidence you have
placed with us. We look forward to continuing to help you meet your investment
goals!
Cordially,
/s/ Walter G. Sall
Walter G. Sall
Chairman
<PAGE> 22
[insert Statue of Liberty logo]
GATEWAY
MID CAP INDEX FUND
AND
SMALL CAP INDEX FUND
SEMI-ANNUAL REPORT 1996
<PAGE> 23
GATEWAY MID CAP INDEX AND SMALL CAP INDEX FUNDS
Highlights at June 30,1996
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
----------------------------------------------------------------------------------------------------
Past One Three Five Ten Since Inception Price
Quarter Year Years Years Years Inception Date Per Share
------- ---- ----- ----- ----- --------- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gateway Mid Cap Index 1.55% 16.61% 9.86% n/a n/a 8.47% 9/30/92 $12.47
Gateway Small Cap Index 3.18 17.83 9.48 n/a n/a 9.72 6/16/93 $12.01
S&P MidCap 400 Index 2.88 21.59 14.13 16.68 n/a
Wilshire Small Cap Index 3.86 20.95 14.40 n/a n/a
S&P 500 Stock Index 4.49 26.00 17.22 15.73 13.78
Lehman Gov't/Corp. Bond 0.47 4.66 5.16 8.48 8.41
U. S. Inflation (CPI) 0.67 2.79 2.77 2.88 3.66
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
------------------------------------------------------------------------------
Past One Three Five Ten Since
Quarter Year Years Years Years Inception
------- ---- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Gateway Mid Cap Index 1.55% 16.61% 32.60% n/a n/a 35.66%
Gateway Small Cap Index 3.18 17.83 31.24 n/a n/a 32.55
S&P MidCap 400 Index 2.88 21.59 48.68 116.30 n/a
Wilshire Small Cap Index 3.86 20.95 49.72 n/a n/a
S&P 500 Stock Index 4.49 26.00 61.08 107.59 263.57
Lehman Gov't/Corp. Bond 0.47 4.66 16.29 50.24 124.25
U. S. Inflation (CPI) 0.67 2.79 8.55 15.26 43.25
</TABLE>
Performance data throughout this report represents past performance. The average
annual total return figures assume the reinvestment of dividends. 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.
This report must be preceded or accompanied by a current prospectus.
1
<PAGE> 24
GATEWAY MID CAP INDEX AND SMALL CAP INDEX FUNDS
Letter from the Chairman
Dear Shareholder:
The small capitalization and middle capitalization sectors rebounded vigorously
in the first half of 1996. Responding to improved corporate earnings, companies
in these classifications attracted investor attention.
Each of your Gateway growth sector portfolios made excellent progress in the
first half of 1996. In the portfolio managers' report on the following pages,
Pete Thayer and Patrick Rogers explain the market fundamentals affecting the
returns earned in these funds.
Finally, I take great pleasure in announcing the appointment of R. S. Harrison
to The Gateway Trust Board of Trustees. Mr. Harrison is chairman of Baldwin
Piano & Organ Co. and serves as a director of several corporations. He brings a
wealth of financial and managerial skills with him, and, on behalf of fellow
boardmembers and shareholders, I welcome him to the Board of Trustees.
Cordially,
/s/ Walter G. Sall
- -----------------------
Walter G. Sall
Chairman
Co-Portfolio Managers' Report
Due mainly to an impressive first quarter, the Gateway Mid Cap Index and Small
Cap Index Funds produced strong results during the first half of 1996, earning
total returns of 7.41% and 8.69%, respectively. For the trailing twelve months
ended June 30, 1996, the Mid Cap Index and Small Cap Index Funds produced total
returns of 16.61% and 17.83%, respectively.
Extending the tremendous gains from 1995, the first six months of 1996 remained
quite favorable for the U. S. equity markets. However, while the economy
increased significantly during the first half of 1996, the growth rate in
corporate profits slowed down from their outstanding gains in 1995. Despite this
slowdown, the stock market continued to set all-time highs. The S&P 500 Stock
Index produced a total return of 10.10% during this same time period.
The Gateway Mid Cap Index Fund invests in the same 400 stocks as the S&P MidCap
400 Index. As the name implies, the common stocks which populate the portfolio
are middle-sized companies with a market capitalization range from $168 million
to $8.4 billion. Typically, these companies are established firms still within
the growth phase of their business lines. The portfolio is extremely diversified
across twenty-three industry groups with the largest weighting of 14.90% in
utilities.
2
<PAGE> 25
GATEWAY MID CAP INDEX AND SMALL CAP INDEX FUNDS
Co-Portfolio Managers' Report
The Gateway Small Cap Index Fund invests in the 250 stocks represented in the
Wilshire 250 Small Cap Index. Once again as the name suggests, the stocks in
this index are the smaller, younger companies which are experiencing higher
growth rates. The weighted average market capitalization for this portfolio is
$769 million. Similar to the Mid Cap Index Fund, the Small Cap Index Fund is
broadly diversified among twenty-two industry groups. The largest sector is
finance, insurance, and real estate at 18.05%.
With a strong market environment in place over the past eighteen months, our
proprietary computer model, the Put/RA Factor, measured over 300 consistently
during the second quarter of 1996. At this level, we become cautious toward the
equity market. Consequently, we lowered the risk of the Mid Cap Index and Small
Cap Index Funds by hedging with put options. We do not purchase put options
because we wish or expect the market to decline, but rather to protect assets
should a significant decline occur in the market in a short period of time. If a
decline in stock prices does not occur, the cost of put options reduces the
total return by the amount paid for the protection. In the first half of 1996,
this protection cost the Mid Cap Index and Small Cap Index Funds 0.85% and
0.80%, respectively.
Economic news remains favorable at the end of the second quarter. Investors have
become aware, however, that a strong economy typically leads to increased
inflation. The Federal Reserve Board may increase interest rates should this
occur. An increase in interest rates certainly would make the stock market
vulnerable to a sell-off. To this point, there remains a lack of proof that
inflation has risen.
Nevertheless, nervousness pervades in the financial markets. This sentiment has
increased, and will continue to increase, the daily volatility of the markets.
As such, we feel it is prudent to selectively own put options during this
environment.
A longer-term view of the financial markets suggests the middle capitalization
and smaller capitalization sectors will continue to provide outstanding
opportunities for investors. As always, we appreciate that you have selected
Gateway to take advantage of such opportunities to fulfill your investment
goals.
/s/J. P. Rogers
- ----------------------
J. Patrick Rogers, CFA
Co-Portfolio Manager
/s/Peter W. Thayer
- ----------------------
Peter W. Thayer, CFA
Co-Portfolio Manager
3
<PAGE> 26
GATEWAY MID CAP INDEX FUND
Co-Portfolio Managers' Overview
<TABLE>
<CAPTION>
GATEWAY MID CAP INDEX FUND
1996
-------------------------------
1ST QTR. 2ND QTR.
-------- --------
<S> <C> <C>
CONTRIBUTION OF STOCKS
Performance of Stocks 5.88% 2.42%
Dividends Earned 0.42 0.39
INTEREST EARNED 0.05 0.04
CONTRIBUTIONS OF OPTIONS
Effect of Options: Calls 0.00 0.00
Effect of Options: Puts (0.06) (0.79)
EFFECT OF FEES
Fund Expenses (0.50) (0.50)
Brokerage Commissions (0.02) (0.01)
----- -----
TOTAL RETURN 5.77% 1.55%
===== =====
</TABLE>
<TABLE>
<CAPTION>
TOP TEN HOLDINGS
GATEWAY MID CAP INDEX FUND
AS OF JUNE 30, 1996
--------------------------
<S> <C>
Hospitality Franchise Systems 1.26%
U. S. Robotics 1.12%
Thermo Electron Corporation 0.90%
HEALTHSOUTH Rehabilitation Corp. 0.86%
Parametric Technology Corporation 0.85%
Mirage Resorts Incorporated 0.79%
Seagate Technology, Inc. 0.74%
Coca-Cola Enterprises, Inc. 0.73%
Cardinal Health, Inc. 0.71%
Frontier Corp. 0.70%
</TABLE>
GATEWAY SMALL CAP INDEX FUND
Co-Portfolio Manager's Overview
<TABLE>
<CAPTION>
GATEWAY SMALL CAP INDEX FUND
1996
1ST QTR. 2ND QTR.
-------- --------
<S> <C> <C>
CONTRIBUTION OF STOCKS
Performance of Stocks 5.46% 3.92%
Dividends Earned 0.38 0.35
INTEREST EARNED 0.02 0.04
CONTRIBUTIONS OF OPTIONS
Effect of Options: Calls 0.00 0.00
Effect of Options: Puts (0.09) (0.71)
EFFECT OF FEES
Fund Expenses (0.41) (0.37)
Brokerage Commissions (0.02) (0.05)
----- -----
TOTAL RETURN 5.34% 3.18%
===== =====
</TABLE>
<TABLE>
<CAPTION>
TOP TEN HOLDINGS
GATEWAY SMALL CAP INDEX FUND
AS OF JUNE 30, 1996
<S> <C>
Shared Medical Systems Corporation 0.87%
Nabors Industries, Inc. 0.84%
First Commerce Corp. of Louisiana 0.82%
Comdisco, Inc. 0.81%
Chris-Craft Industries, Inc. 0.80%
Wallace Computer Services, Inc. 0.80%
Noram Energy Corp. 0.80%
First American Corp. of Tennessee 0.77%
Compass Bancshares Inc. 0.76%
Jones Apparel Group Inc. 0.75%
</TABLE>
4
<PAGE> 27
GATEWAY MID CAP INDEX FUND
Portfolio of Investments - June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Shares Common Stocks Value
------ ------------- -----
<S> <C> <C>
AEROSPACE & EQUIPMENT 0.97%
200 OEA, Inc. $ 7,513
400 Rohr Inc. * 8,350
100 Sequa Corp. * 4,300
600 Sundstrand Corporation 21,975
200 Teleflex Incorporated 9,563
200 Thiokol Corporation 7,900
--------
59,601
--------
APPAREL 1.12%
200 Ann Taylor Stores Corp. * 4,075
500 Cintas Corp. 26,563
200 Jones Apparel Group Inc. * 9,838
300 Nine West Group, Inc. * 15,300
500 Warnaco Group, Inc. 12,813
--------
68,589
--------
AUTOMOBILES & PARTS 1.09%
300 Arvin Industries, Inc. 6,675
300 Federal-Mogul Corporation 5,550
400 Federal Signal Corporation 9,450
700 Harley Davidson, Inc. 28,831
300 Modine Manufacturing Company 7,913
300 Superior Industries International 7,950
--------
66,369
--------
OTHER CONSUMER DURABLES 1.78%
400 Albany International Corp. Class A 9,025
700 Burlington Industries, Inc. * 9,888
200 Church & Dwight Company, Inc. 4,175
400 GenCorp, Inc. 6,075
200 Herman Miller, Inc. 6,113
100 HON Industries, Inc. 2,863
800 Leggett & Platt, Inc. 22,200
100 NCH Corporation 6,425
1,300 Shaw Industries, Inc. 16,981
OTHER CONSUMER DURABLES - Continued
200 Stanhome Incorporated $ 5,313
700 Unifi, Inc. 19,731
--------
108,789
--------
BUILDING MATERIALS & CONSTRUCTION 0.28%
300 Granite Construction, Inc. 6,975
200 Jacobs Engineering Group Inc. * 5,275
200 Southdown Incorporated 4,700
--------
16,950
--------
BUSINESS SERVICES & SUPPLIES 3.61%
100 Angelica Corporation 2,363
450 Comdisco, Inc. 12,038
1,400 Equifax Inc. 36,575
300 FlightSafety International, Inc. 16,275
300 Healthcare COMPARE Corp. * 14,606
305 Information Resources, Inc. * 3,698
400 Kelly Services, Inc. 11,850
700 Manpower Inc. 27,563
500 Medaphis Corp. * 19,844
600 Olsten Corp. 17,625
675 Paychex, Inc. 32,442
400 Pittston Brinks Group 11,650
300 Rollins, Inc. 7,013
500 Sotheby's Holdings, Inc. 7,219
--------
220,761
--------
CHEMICALS 3.35%
600 Albemarle Corp. 10,950
300 Betz Laboratories, Inc. 13,163
600 Cabot Corporation 14,775
500 Crompton & Knowles 8,344
300 Dexter Corp. 8,963
1,100 Ethyl Corp. 10,656
300 Ferro Corporation 7,950
</TABLE>
See accompanying notes to financial statements
5
<PAGE> 28
GATEWAY MID CAP INDEX FUND
Portfolio of Investments - June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Shares Common Stocks Value
------ ------------- -----
<S> <C>
CHEMICALS - Continued
100 Fuller (H. B.) Company $ 3,638
400 Georgia Gulf Corp. 11,700
800 IMC Global, Inc. 30,100
400 Lawter International, Inc. 5,000
300 Loctite Corporation 13,988
600 Lubrizol Corporation 18,188
200 Minerals Technologies, Inc. 6,875
200 Olin Corporation 17,863
400 Schulman (A.), Inc. 9,750
500 Sterling Chemicals, Inc. * 5,781
300 Wellman, Inc. 7,013
--------
204,697
--------
ELECTRONICS & COMPUTERS 9.37%
500 ADC Telecommunications, Inc. * 22,375
400 Altera Corporation * 15,175
900 American Power Conversion Corp. * 9,338
1,125 Analog Devices, Inc. * 28,688
400 Arrow Electronics, Inc. * 17,250
321 AST Research Inc. * 2,187
800 Atmel Corp. * 24,150
400 Avnet, Inc. 16,900
600 Cirrus Logic, Inc. * 10,463
800 Cypress Semiconductor Corporation * 9,500
800 Dell Computer Corporation * 40,650
300 Hubbell Inc. 19,819
700 Integrated Device Technology * 7,481
700 Linear Technology Corporation 20,956
400 Litton Industries, Inc. * 17,450
200 MagneTek, Inc. * 1,925
500 Maxim Integrated Products * 13,656
1,050 Molex Incorporated 33,600
200 Nellcor, Inc. * 9,725
400 Octel Communications Corp. * 7,850
400 Quantum Corporation * 5,800
ELECTRONICS & COMPUTERS - Continued
1,009 Seagate Technology, Inc. * $ 45,405
700 Sensormatic Electronics Corporation 11,419
400 Sequent Computer Systems, Inc. * 5,375
400 Solectron Corp. * 15,150
700 StrataCom, Inc. 39,506
200 Stratus Computer, Inc. * 5,800
800 U. S. Robotics * 68,300
300 Varian Associates, Inc. 15,563
525 Vishay Intertechnology, Inc. * 12,502
600 Xilinx, Inc. * 19,013
--------
572,971
--------
COMPUTER SOFTWARE & PERIPHERALS 4.67%
700 Adobe Systems, Inc. 24,981
700 America Online Inc. * 30,538
400 BMC Software, Inc. * 23,850
300 Borland International, Inc. * 2,719
800 Cadence Design Systems, Inc. * 27,100
400 Compuware Corp. * 15,750
400 Electronic Arts Inc. * 10,650
200 Exabyte Corporation * 2,613
400 FIserv, Inc. * 12,100
1,200 Informix Corporation * 26,925
500 Mentor Graphics Corporation * 8,094
1,200 Parametric Technology Corporation * 51,975
200 Policy Management Systems Corp. * 10,000
504 Storage Technology Corporation * 19,278
300 Structural Dynamics Research Corp. * 6,563
300 Symantec Corp. * 3,769
200 Symbol Technologies, Inc. * 8,888
--------
285,793
--------
ENERGY 5.44%
600 Anadarko Petroleum Corp. 34,875
800 Apache Corporation 26,300
</TABLE>
See accompanying notes to financial statements
6
<PAGE> 29
GATEWAY MID CAP INDEX FUND
Portfolio of Investments - June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Shares Common Stocks Value
------ ------------- -----
ENERGY - Continued
<S> <C> <C>
300 BJ Services Company * $ 10,575
300 Diamond Shamrock, Inc. 8,644
600 ENSCO International Incorporated * 19,538
1,600 Global Marine, Inc. * 22,200
800 Lyondell Petrochemical Company 19,400
300 MAPCO 16,913
400 Murphy Oil Corporation 18,200
1,100 Nabors Industries, Inc. * 17,875
500 Noble Affiliates, Inc. 18,875
500 Parker Drilling Company * 2,906
300 Parker & Parsley Petroleum 8,288
400 Quaker State Corporation 6,000
400 Questar Corporation 13,600
1,000 Ranger Oil Limited 7,313
300 Seagull Energy Corporation * 7,500
400 Smith International, Inc. * 12,050
300 Tosco Corporation 15,075
400 Valero Energy Corporation 10,000
300 Varco International, Inc. * 5,438
453 Weatherford International, Inc. * 13,618
500 Witco Corporation 17,219
--------
332,402
--------
FINANCE, INSURANCE & REAL ESTATE 12.58%
1,200 AFLAC Incorporated 35,925
500 American Financial Group, Inc. 15,125
400 Bancorp Hawaii, Inc. 14,400
1,212 Bear Stearns Companies, Inc. 28,785
600 Central Fidelity Banks, Inc. 13,500
400 City National Corporation 6,325
400 Crestar Financial Corporation 21,350
300 Dauphin Deposit Corporation 8,569
600 Edwards (A. G.), Inc. 16,313
600 First of America Bank Corporation 26,888
750 First Security Corporation 18,094
FINANCE, INSURANCE & REAL ESTATE - Continued
600 First Tennessee National Corp. $ 18,338
300 First Virginia Banks, Inc. 12,019
700 Firstar Corp. 32,331
500 Foundation Health Corp. * 17,906
700 Franklin Resources, Inc. 42,744
200 Hartford Steam Boiler Inspection and Insurance Co. 9,825
600 Healthsource, Inc. * 10,500
1,100 Hibernia Corporation 11,963
900 Marshall & Ilsley Corporation 25,031
500 Mercantile Bancorporation, Inc. 22,281
500 Mercantile Bankshares Corporation 12,781
500 Northern Trust Corporation 28,938
700 PaineWebber Group, Inc. 16,625
200 PHH Corporation 11,400
700 Progressive Corporation 32,375
400 Provident Companies, Inc. 14,825
600 Regions Financial Corp. 28,125
1,600 Schwab (Charles) Corporation 39,200
900 SouthTrust Corporation 25,425
800 State Street Boston Corporation 40,800
800 Summit Bancorporation 28,150
500 SunAmerica, Inc. 28,250
600 T. Rowe Price Associates, Inc. 18,525
200 Transatlantic Holdings, Inc. 14,013
499 Value Health, Inc. * 11,820
300 Wilmington Trust Corporation 9,750
--------
769,214
--------
FOOD, BEVERAGE & TOBACCO 3.83%
1,300 Coca-Cola Enterprises, Inc. 44,931
400 Dean Foods Company 9,925
600 Dole Food Company, Inc. 25,875
200 Dreyer's Grand Ice Cream, Inc. 6,375
750 Flowers Industries, Inc. 12,047
1,000 IBP, Inc. 27,563
</TABLE>
See accompanying notes to financial statements
7
<PAGE> 30
GATEWAY MID CAP INDEX FUND
Portfolio of Investments - June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Shares Common Stocks Value
------ ------------- -----
<S> <C> <C>
FOOD, BEVERAGE & TOBACCO - Continued
200 International Multifoods Corp. $ 3,675
300 Lancaster Colony Corporation 11,213
300 Lance, Inc. 4,988
800 McCormick & Company, Inc. 17,600
400 Michael Foods, Inc. 4,625
500 Savannah Foods & Industries, Inc. 6,438
400 Smucker (J. M.) Company 7,850
1,300 Tyson Foods, Inc. 35,506
300 Universal Corporation Holding Co. 7,931
200 Universal Foods Corporation 7,363
--------
233,905
--------
HEALTH 7.52%
400 Acuson Corporation * 6,400
200 Advanced Technology Laboratories, Inc. * 7,325
300 APL Ltd. 7,838
600 Applied Bioscience International, Inc. * 6,263
400 Apria Healthcare Group Inc. * 12,550
400 Bergen Brunswig Corporation 11,125
300 Biogen, Inc. * 16,406
600 Cardinal Health, Inc. 43,425
400 Carter-Wallace, Inc. 5,850
500 Centocor, Inc. * 14,969
409 Chiron Corporation * 40,031
400 Coram Healthcare Corp. * 1,650
300 Datascope Corporation * 5,363
300 Dentsply International, Inc. 12,694
100 Diagnostic Products Corporation 3,850
400 FHP International Corp. * 11,000
400 Forest Laboratories, Inc. * 15,500
200 Genzyme Corporation * 10,075
450 Health Care & Retirement * 10,688
1,469 HEALTHSOUTH Rehabilitation Corp. * 52,792
415 Horizon CMS Healthcare Corp. * 5,343
1,100 IVAX Corporation 17,394
HEALTH - Continued
576 Laboratory Corp. of America * $ 4,284
400 McKesson Corp. 19,125
1,200 Mylan Laboratories, Inc. 20,700
600 NovaCare, Inc. * 4,613
300 PacifiCare Health Systems, Inc. * 20,363
700 Perrigo Company * 7,919
200 Scherer (R. P.) Corp. * 9,075
1,000 Stryker Corporation 22,688
700 Vencor Inc. * 21,350
300 Watson Pharmaceuticals * 11,363
--------
460,011
--------
MACHINERY & RELATED PRODUCTS 0.67%
200 Duriron Company, Inc. 4,788
200 Goulds Pumps Incorporated 5,138
300 Kennametal Inc. 10,181
100 Lawson Products, Inc. 2,519
200 Nordson Corporation 11,375
300 Stewart & Stevenson Services, Inc. 6,750
--------
40,751
--------
MINING & METALS 1.02%
800 Battle Mountain Gold Company 5,850
300 CalMat Company 5,419
100 Cleveland-Cliffs, Inc. 3,919
300 Donaldson Company, Inc. 7,669
300 Keystone International, Inc. 6,244
625 RPM, Inc. 9,805
300 Vulcan Materials Co. 17,813
300 Watts Industries, Inc. 5,588
--------
62,307
--------
PAPER & FOREST PRODUCTS 2.01%
400 Bowater, Inc. 15,050
200 Chesapeake Corporation 5,238
400 Consolidated Papers, Inc. 20,800
</TABLE>
See accompanying notes to financial statements
8
<PAGE> 31
GATEWAY MID CAP INDEX FUND
Portfolio of Investments - June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Shares Common Stocks Value
------ ------------- -----
<S> <C> <C>
PAPER & FOREST PRODUCTS - Continued
400 Glatfelter (P. H.) Co. $ 7,350
500 Longview Fibre Company 8,469
400 Pentair, Inc. 12,025
300 Rayonier Inc. 11,344
840 Sonoco Products Company 23,835
400 Tambrands Inc. 16,375
120 Wausau Paper Mills Company 2,400
--------
122,886
--------
PRECISION INSTRUMENTS 1.46%
300 Ametek, Inc. 6,525
300 Beckman Instruments, Inc. 11,363
200 Measurex Corporation 5,850
600 Teradyne, Inc. * 10,388
1,325 Thermo Electron Corporation * 55,153
--------
89,279
--------
RETAIL 4.57%
600 Bed Bath and Beyond * 15,938
400 Best Buy Company, Inc. * 9,125
300 Claire's Stores, Inc. 8,288
700 CML Group, Inc. 2,931
750 Dollar General Corporation 21,891
300 Duty Free International, Inc. 4,556
500 Family Dollar Stores, Inc. 8,688
400 Fingerhut Companies, Inc. 6,250
200 Fred Meyer Inc. * 5,875
400 Hancock Fabrics, Inc. 4,375
400 Hannaford Brothers Company 13,050
500 Heilig-Meyers Company 12,000
900 Home Shopping Network, Inc. * 10,856
500 Intelligent Electronics, Inc. 4,219
800 Kohl's Corp. * 29,250
300 Lands' End, Inc. * 7,388
400 MacFrugal's Bargains-Closeouts, Inc. * 7,150
RETAIL - Continued
300 Microwarehouse Inc. * $ 5,925
400 Payless ShoeSource, Inc. * 12,675
600 Revco (D. S.) Inc. * 14,288
600 Ruddick Corporation 7,388
1,000 Service Merchandise Company Inc. * 5,688
200 Tiffany & Co. 14,600
800 Viking Office Products * 25,050
400 Vons Companies, Inc. * 14,950
300 Waban Inc. * 7,163
--------
279,557
--------
SERVICES 6.32%
200 Airborne Freight Corporation 5,200
100 Alaska Air Group, Inc. * 2,738
300 Arnold Industries, Inc. 4,238
300 Atlantic Southeast Airlines, Inc. 8,494
300 Banta Corp. 7,594
400 Belo (A. H.) Corporation Class A 14,900
400 Bob Evans Farms, Inc. 6,775
700 Brinker International, Inc. * 10,544
300 Buffets, Inc. * 3,638
600 Calgon Carbon Corp. 8,100
309 Chris-Craft Industries, Inc. * 13,596
100 CPI Corporation 1,650
600 Cracker Barrel Old Country Store, Inc. * 14,475
300 Ennis Business Forms, Inc. 3,356
300 Gibson Greetings, Inc. * 4,144
400 Golden Books Family Entertainment, Inc. * 4,850
100 Houghton Mifflin Company 4,975
500 Hunt (J. B.) Transport Services, Inc. 10,469
600 Illinois Central Corp. 17,025
200 International Dairy Queen, Inc. * 4,325
400 Kansas City Southern Industries, Inc. 17,175
400 Lee Enterprises, Incorporated 9,500
300 Lone Star Steakhouse * 11,306
</TABLE>
See accompanying notes to financial statements
9
<PAGE> 32
GATEWAY MID CAP INDEX FUND
Portfolio of Investments -June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Shares Common Stocks Value
------ ------------- -----
<S> <C> <C>
SERVICES - Continued
300 Media General, Inc. $ 11,138
800 Omnicom Group Inc. 37,050
400 Outback Steakhouse, Inc. * 13,750
400 Promus Hotel Corporation * 11,850
400 Reynolds and Reynolds Company 21,300
200 Sbarro Incorporated 5,013
100 Scholastic Corp. * 6,225
200 TCA Cable TV Incorporated 6,000
600 Topps Company, Inc. * 3,338
400 Trinity Industries, Inc. 13,575
800 USA Waste Services, Inc. * 23,750
200 Wallace Computer Services, Inc. 11,938
100 Washington Post Company 32,400
--------
386,394
--------
STEEL & IRON 0.55%
700 Allegheny Ludlum Corporation 13,213
200 Carpenter Technology Corporation 6,400
100 Lukens Inc. 2,381
200 Oregon Steel Mills, Inc. 2,750
200 Precision Castparts Corporation 8,600
--------
33,344
--------
OTHER INDUSTRIAL CYCLICALS 5.15%
400 Alexander & Baldwin Company 9,700
400 Alumax, Inc. * 12,150
300 Brush Wellman Inc. 5,681
100 Carlisle Companies Inc. 5,313
875 Clayton Homes, Inc. 17,500
200 Cross (A. T.) Company 3,538
600 Danaher Corp. 26,100
450 Diebold Incorporated 21,713
400 Fastenal Company 17,450
400 First Brands Corporation 10,800
450 Hanna (M. A.) Company 9,366
OTHER INDUSTRIAL CYCLICALS - Continued
200 Kaydon Corporation $ 8,600
661 Mark IV Industries, Inc. 14,955
100 MAXXAM Inc. * 3,925
1,300 Office Depot, Inc. * 26,569
300 Overseas Shipholding Group, Inc. 5,438
400 Sealed Air Corporation * 13,450
400 Standard Register Company 9,875
1,350 Staples, Inc. * 26,241
200 Tecumseh Products Company 10,800
600 Tidewater Inc. 26,250
200 Verifone, Inc. * 8,488
400 York International Corporation 20,700
--------
314,602
--------
UTILITIES 14.90%
1,100 360 Communications Company * 26,400
700 AES Corporation * 19,688
700 AGL Resources Inc. 13,213
1,100 Allegheny Power System, Inc. 33,963
300 American Water Works Co., Inc. 12,038
500 Atlantic Energy Inc. 9,125
100 Black Hills Corporation 2,488
500 Brooklyn Union Gas Company 13,594
500 California Energy Company * 12,750
200 Central Louisiana Electric Company, Inc. 5,350
400 Central Maine Power Company 5,825
500 Century Telephone Enterprises, Inc. 16,000
800 CMS Energy Corporation 24,750
500 COMSAT 13,031
600 Delmarva Power & Light Company 12,600
400 El Paso Natural Gas Company 15,375
900 Florida Progress Corporation 31,275
1,400 Frontier Corp. 42,788
300 Hawaiian Electric Industries, Inc. 10,594
400 Idaho Power Company 12,450
700 Illinova Corp. 20,125
</TABLE>
See accompanying notes to financial statement
10
<PAGE> 33
GATEWAY MID CAP INDEX FUND
Portfolio of Investments -June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Shares Common Stocks Value
------ ------------- -----
<S> <C> <C>
UTILITIES - Continued
300 Indiana Energy, Inc. $ 8,663
600 IPALCO Enterprises, Inc. 15,788
400 Kansas City Power & Light Company 11,000
600 LG&E Energy Corp. 13,688
400 Lincoln Telecommunications Company 6,525
600 MCN Corporation 14,625
888 Mid American Energy Company 15,374
300 Minnesota Power & Light Company 8,644
500 Montana Power Company 11,156
300 National Fuel Gas Company 10,800
400 Nevada Power Company 8,775
600 New England Electric System 21,750
700 New York State Electric & Gas Corp. 17,063
2,000 NEXTEL Communications, Inc. * 38,125
600 NIPSCO Industries, Inc. 24,075
1,200 Northeast Utilities 16,050
400 Oklahoma Gas & Electric Company 15,900
800 Pinnacle West Capital Corporation 24,300
500 Portland General Corp. Holding Co. 15,406
1,100 Potomac Electric Power Company 29,081
600 Public Service Company of Colorado 22,050
400 Public Service Company of New Mexico 8,175
700 Puget Sound Power & Light Co. 16,975
1,000 SCANA Corporation 28,188
600 Southern New England Telecommunications Corp. 25,238
400 Southwestern Public Service Company 13,050
1,100 TECO Energy, Inc. 27,706
500 Telephone & Data Systems, Inc. 22,531
400 UtiliCorp United Inc. 11,025
400 Vanguard Cellular Systems, Inc. * 8,775
400 Washington Gas Light Company 8,800
1,000 Wisconsin Energy Corporation 28,875
300 WPL Holdings, Inc. 9,863
----------
911,461
----------
MISCELLANEOUS 3.90%
700 Callaway Golf Co. $ 23,319
1,000 Circus Circus Enterprises, Inc. * 40,938
200 GATX Corporation 9,650
200 Harsco Corp. 13,438
1,100 Hospitality Franchise Systems * 77,000
1,300 International Game Technology 22,019
900 Mirage Resorts Incorporated * 48,380
100 National Presto Industries, Inc. 3,819
----------
238,563
----------
TOTAL COMMON STOCKS 96.16% 5,879,196
(cost $4,879,752)
Contracts
PUT OPTIONS ON THE STANDARD & POOR'S 500
STOCK INDEX 0.20%
50 expiring August 16, 1996 at 630 12,188
(cost $25,175)
REPURCHASE AGREEMENT 3.35%
5% repurchase agreement dated June 28, 1996
with Star Bank, N.A., due July 1, 1996
(repurchase proceeds $205,085),
collateralized by $220,000
6% GNMA Pool #8974, maturity May 20, 2022
(market value $222,750) 205,000
----------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENT 99.71% 6,096,384
OTHER ASSETS AND LIABILITIES, NET 0.29% 17,868
----------
NET ASSETS 100% $6,114,252
==========
</TABLE>
* Denotes a non-income producing security.
See accompanying notes to financial statement
11
<PAGE> 34
GATEWAY MID CAP INDEX FUND
Statement of Assets and Liabilities - June 30, 1996 (unaudited)
<TABLE>
<S> <C>
ASSETS:
Common stocks, at value (original cost $4,879,752) $5,879,196
Put options, at value (original cost $25,175) 12,188
Repurchase agreement 205,000
Dividend and interest receivable 6,340
Receivable for fund shares sold 87
Cash 274
Other assets 20,834
----------
6,123,919
----------
LIABILITIES:
Payable for fund shares redeemed 5,703
Other accrued expenses and liabilities 3,964
----------
9,667
----------
NET ASSETS $6,114,252
----------
NET ASSETS CONSIST OF:
Paid-in capital applicable to 490,418 shares outstanding
(unlimited number of shares authorized, no par value) $4,997,614
Overdistributed net investment income (4,999)
Accumulated realized gain, net 135,180
Unrealized appreciation, net 986,457
----------
$6,114,252
----------
NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER
SHARE $12.47
----------
</TABLE>
GATEWAY MID CAP INDEX FUND
Statement of Operations - For the Six Months Ended June 30, 1996 (unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income $ 47,377
Interest income 5,217
----------
52,594
----------
EXPENSES:
Transfer agent and accounting fees 38,783
Investment advisory and management fees 26,715
Registration fees 7,632
Professional fees 6,631
Custodian fees 6,449
Trustees' fees 3,393
Reports to shareholders 2,249
Other expenses 5,179
----------
97,031
Fees waived and expenses reimbursed under contract (37,454)
Expenses reimbursed voluntarily (305)
----------
59,272
----------
NET INVESTMENT LOSS (6,678)
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on investments:
Securities 158,487
Put options expired and closed (38,493)
----------
Net realized gain on investments 119,994
----------
Change in unrealized appreciation
(depreciation) of investments:
Securities 299,435
Put options 903
----------
Change in unrealized appreciation (depreciation)
of investments 300,338
----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 420,332
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 413,654
----------
</TABLE>
See accompanying notes to financial statements
12
<PAGE> 35
GATEWAY MID CAP INDEX FUND
Statement of Changes in Net Assets (unaudited)
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ (6,678) $ 2,708
Net realized gain on investments 119,994 201,764
Change in unrealized appreciation
(depreciation) of investments 300,338 1,077,912
---------- ----------
Net increase in net assets resulting from
operations 413,654 1,282,384
---------- ----------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS:
From net investment income -- (28,380)
From net realized gain on investments -- (175,010)
---------- ----------
Decrease in net assets from dividends
and distributions -- (203,390)
---------- ----------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 670,295 770,226
Net asset value of shares issued in
reinvestment of dividends and distributions -- 202,760
Payments for shares redeemed (663,126) (2,947,026)
---------- ----------
Net increase (decrease) in net assets from
fund share transactions 7,169 (1,974,040)
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS 420,823 (895,046)
NET ASSETS:
Beginning of period 5,693,429 6,588,475
---------- ----------
End of period $6,114,252 $5,693,429
========== ==========
FUND SHARE TRANSACTIONS:
Shares sold 54,539 68,899
Shares issued in reinvestment of dividends
and distributions -- 17,473
Less shares redeemed (54,356) (283,661)
---------- ----------
NET INCREASE (DECREASE) IN
SHARES OUTSTANDING 183 (197,289)
========== ==========
</TABLE>
GATEWAY MID CAP INDEX FUND
Financial Highlights (unaudited)
<TABLE>
<CAPTION>
Six Months Year Ended Period Ended
Ended December 31, December 31,
June 30, 1996 1995 (5) 1994 1993 1992 (1)
------------- ----------------------------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $11.61 $ 9.58 $10.16 $10.04 $10.00
------ ------ ------ ------ ------
Net investment income (loss) (0.01) 0.03 0.08 0.11 0.03
Net gains (losses) on securities 0.87 2.43 (0.60) 0.41 0.04
------ ------ ------ ------ ------
Total from investment operations 0.86 2.46 (0.52) 0.52 0.07
------ ------ ------ ------ ------
Dividends from net
investment income 0.00 (0.06) (0.05) (0.11) (0.03)
Distributions from capital gains 0.00 (0.37) (0.01) (0.29) 0.00
------ ------ ------ ------ ------
Total distributions 0.00 (0.43) (0.06) (0.40) (0.03)
------ ------ ------ ------ ------
Net asset value, end of period $12.47 $11.61 $ 9.58 $10.16 $10.04
====== ====== ====== ====== ======
TOTAL RETURN 7.41%(3) 25.68% (5.12%) 5.18% 0.70%(3)
Net assets, end of period $ 6.11 $ 5.69 $ 6.59 $10.46 $10.69
(millions)
Ratio of net expenses to
average net assets (2) 1.99% 1.98% 1.50% 1.50% 1.50%
Ratio of net investment income
(loss) to average net assets(2) (0.22%) 0.05% 0.59% 1.06% 1.39%
Portfolio turnover rate 9%(2) 18% 8% 105% 0%(3)
Average commission per share (4) $ 0.04 n/a n/a n/a n/a
</TABLE>
(1) The Mid Cap Index Fund commenced operations on September 30, 1992.
(2) The ratios of net expenses to average net assets would have increased and
net investment income to average net assets would have decreased by 0.01%
in 1996 and 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) Pursuant to new reporting requirements, average commission per share is
presented for 1996.
(5) On December 15, 1995, Gateway Investment Advisers, L.P. became investment
adviser of the Fund.
See accompanying notes to financial statements
13
<PAGE> 36
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Shares Common Stock Value
------ ------------ -----
<S> <C> <C>
AEROSPACE & EQUIPMENT 0.99%
1,200 Kaman Corporation $ 12,075
1,000 Teleflex Incorporated 47,813
1,100 Thiokol Corporation 43,450
--------
103,338
--------
APPAREL 1.70%
1,200 Brown Group, Inc. 20,775
1,600 Jones Apparel Group Inc. * 78,700
1,500 Kellwood Company 27,469
2,100 Westpoint Stevens, Inc. * 50,400
--------
177,344
--------
AUTOMOBILES & PARTS 1.72%
1,400 Arvin Industries, Inc. 31,150
1,100 Clarcor Inc. 27,294
2,300 Federal-Mogul Corporation 42,550
1,200 Standard Products Co. 27,825
1,900 Superior Industries International 50,350
--------
179,169
--------
OTHER CONSUMER DURABLES 3.12%
2,800 Acclaim Entertainment * 27,125
1,900 Albany International Corp. Class A 42,869
1,000 Bassett Furniture Industries, Inc. 26,625
2,000 Cone Mills Corporation * 22,625
2,300 GenCorp, Inc. 34,931
1,600 HON Industries, Inc. 45,800
1,200 La-Z-Boy Chair Company 36,225
500 NCH Corporation 32,125
1,500 Russ Berrie and Company, Inc. 27,563
1,100 Stanhome Incorporated 29,219
--------
325,107
--------
BUILDING MATERIALS & CONSTRUCTION 2.03%
1,800 Centex Corporation 56,475
2,300 Kaufman and Broad Home Corp. 33,350
2,100 Lennar Corporation 52,500
BUILDING MATERIALS & CONSTRUCTION - Continued
1,700 Pulte Corporation $ 45,475
1,000 Southdown Incorporated 23,500
--------
211,300
--------
BUSINESS SERVICES & SUPPLIES 3.47%
1,500 AMRESCO Inc. 25,781
3,150 Comdisco, Inc. 84,263
1,900 Coventry Corp. * 29,806
1,927 Information Resources, Inc. * 23,365
2,600 Pittston Brinks Group 75,725
1,100 Profit Recovery Group International * 21,863
2,300 Rollins, Inc. 53,763
3,300 Sotheby's Holdings, Inc. 47,644
--------
362,210
--------
CHEMICALS 1.49%
600 Chemed Corporation 22,275
800 Fuller (H. B.) Company 29,100
2,800 Lawter International, Inc. 35,000
800 Petrolite Corporation 25,400
3,800 Sterling Chemicals, Inc. * 43,938
--------
155,713
--------
ELECTRONICS & COMPUTERS 5.97%
1,848 AST Research Inc. * 12,590
2,700 Aura Systems Inc. * 9,534
1,650 Baldor Electric Company 36,300
1,100 Cyrix Corporation * 19,044
1,300 DSP Communications Inc. * 66,706
2,000 ESS Technology Inc. * 36,750
3,600 Geotek Communications, Inc. * 49,275
1,500 IMP Inc. * 16,781
2,400 Kemet Corp. * 48,300
1,200 Lattice Semiconductor * 28,950
2,300 Oak Technology Inc. * 21,706
3,000 Octel Communications Corp. * 58,875
3,300 Quantum Corporation * 47,850
1,800 SCI Systems Inc. * 73,238
</TABLE>
See accompanying notes to financial statements
14
<PAGE> 37
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Shares Common Stock Value
------ ------------ -----
<S> <C> <C>
ELECTRONICS & COMPUTERS - Continued
2,200 Sequent Computer Systems, Inc. * $ 29,563
1,800 Tencor Instruments 33,750
2,400 VLSI Technology, Inc. * 33,450
--------
622,662
--------
COMPUTER SOFTWARE & PERIPHERALS 7.01%
1,900 Cerner Corp. * 40,850
2,200 Cheyenne Software Inc. * 42,350
3,600 Computervision Corp. * 35,775
1,500 Exabyte Corporation * 19,594
1,400 FTP Software Inc. * 11,375
900 Global Village Communications * 7,481
2,000 Macromedia Inc. * 44,000
700 Medic Computer System Inc. * 56,831
2,500 NetManage Inc. * 27,656
2,800 Network General Corp. * 59,850
2,200 PSINet Inc. * 25,163
1,800 Quarterdeck Corp. * 16,988
2,600 S3, Incorporated * 32,175
1,400 Shared Medical Systems Corporation 90,300
2,000 Structural Dynamics Research Corp. * 43,750
3,100 Symantec Corp. * 38,944
1,400 Symbol Technologies, Inc. * 62,213
2,900 Western Digital Corp. * 75,763
--------
731,058
--------
ENERGY 6.14%
1,700 BJ Services Company * 59,925
5,400 Nabors Industries, Inc. * 87,750
7,700 Noram Energy Corp. 83,256
1,600 Oneok, Inc. 40,100
1,900 Pogo Producing Company 72,438
2,200 Quaker State Corporation 33,000
5,300 Rowan Companies, Inc. * 78,506
2,400 Seagull Energy Corporation * 60,000
2,500 Smith International, Inc. * 75,313
1,500 Southwest Gas Corporation 24,094
1,800 Southwestern Energy Company 25,538
--------
639,920
--------
FINANCE, INSURANCE & REAL ESTATE 18.05%
3,200 20th Century Industries * $ 53,200
900 Alex. Brown & Sons Incorporated 50,850
1,200 American Bankers Insurance Group, Inc. 52,500
1,600 Americredit Corp. * 24,800
1,400 Astoria Financial Corp. 38,063
3,100 California Federal Bank, F.S.B. * 56,963
4,300 Catellus Development Corporation * 39,506
2,800 City National Corporation 44,275
1,200 Collective Bancorp, Inc. 28,575
2,400 Compass Bancshares Inc. 78,900
2,600 Credit Acceptance Corp. * 55,250
1,800 Dauphin Deposit Corporation 51,413
1,900 First American Corp. of Tennessee 80,156
2,400 First Commerce Corp. of Louisiana 85,200
600 Foremost Corporation of America 34,125
2,300 Glendale Federal Bank * 41,975
900 Great Financial Corp. 23,344
1,500 Home Financial Corp. 19,594
1,100 Integon Corporation 22,000
1,600 John Alden Financial Corp. 35,400
1,200 Liberty Corporation 38,325
1,800 Life Partners Group, Inc. 40,950
1,100 Life Re Corporation 33,894
1,700 Long Island Bancorp 51,956
1,700 Magna Group Inc. 40,588
2,800 Mid Atlantic Medical Services * 40,075
1,100 NAC Re Corp. 36,850
1,700 Olympic Financial Ltd. * 38,994
900 Onbancorp, Inc. 29,419
2,300 Peoples Bank Bridgeport 51,319
1,000 PHH Corporation 57,000
7,300 Reliance Group Holdings Inc. 54,750
1,900 Riggs National Corp. 23,156
2,600 Rollins Truck Leasing Corp. 27,300
2,600 Roosevelt Financial Group 50,213
400 Seafield Capital Corp. 15,050
2,700 Sovereign Bancorp Inc. 27,169
2,000 Standard Federal Bank 77,250
1,800 United Companies Financial Corp. 61,425
</TABLE>
See accompanying notes to financial statements
15
<PAGE> 38
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Shares Common Stock Value
------ ------------ -----
<S> <C> <C>
FINANCE, INSURANCE & REAL ESTATE - Continued
2,094 Valley National Bancorp $ 53,397
800 Washington National Corporation 20,650
3,600 Western National Corp. 66,375
1,100 Zenith National Insurance Corp. 30,113
----------
1,882,307
----------
FOOD, BEVERAGE & TOBACCO 2.68%
3,400 Chiquita Brands International, Inc. 44,413
900 Dreyer's Grand Ice Cream, Inc. 28,688
3,400 Flowers Industries, Inc. 54,613
1,200 International Multifoods Corp. 22,050
2,300 Interstate Bakeries Corporation 61,956
2,100 Ralcorp Holdings Inc.* 43,181
1,900 Savannah Foods & Industries, Inc. 24,463
----------
279,364
----------
HEALTH 7.36%
1,600 Acuson Corporation * 25,600
900 Advanced Technology Laboratories, Inc. * 32,963
2,400 Advanced Tissue Sciences Inc. * 39,000
1,600 Alliance Pharmaceutical Corp. * 26,300
1,600 Ballard Medical Products 30,700
2,200 Bergen Brunswig Corporation 61,188
1,233 Block Drug Company Inc. 51,170
1,400 Cephalon Inc. * 27,475
1,700 Dentsply International, Inc. 71,931
900 Diagnostic Products Corporation 34,650
1,700 Gilead Sciences, Inc. * 42,713
1,800 Haemonetics Corporation * 33,075
1,800 Herbalife International Inc. 26,325
1,700 ICN Pharmaceuticals Inc. 39,525
1,200 Integrated Health Services 28,650
1,600 Lincare Holdings, Inc. * 62,600
1,700 Liposome Company Inc. * 31,875
4,800 Perrigo Company * 54,300
1,650 Summit Technology, Inc. * 23,409
1,400 Ventritex Inc. * 24,063
----------
767,512
----------
MACHINERY & RELATED PRODUCTS 3.24%
1,700 BW/IP, Inc. $ 32,513
2,500 Cincinnati Milacron, Inc. 60,000
1,500 Gerber Scientific, Inc. 24,094
2,300 Giddings & Lewis, Inc. 37,663
1,300 Goulds Pumps Incorporated 33,394
1,600 Kennametal Inc. 54,300
700 Lawson Products, Inc. 17,631
500 Nacco Industries, Inc. 27,719
1,800 Silicon Valley Group, Inc. * 33,863
800 Zurn Industries, Inc. 16,700
----------
337,877
----------
MINING & METALS 1.09%
1,300 Coeur D' Alene Mines Corp. 24,050
1,600 Donaldson Company, Inc. 40,900
3,400 Hecla Mining Company * 24,013
2,000 Pegasus Gold Inc. * 24,375
----------
113,338
----------
PAPER & FOREST PRODUCTS 1.70%
1,400 Chesapeake Corporation 36,663
3,400 Gaylord Container Corp. * 26,669
2,200 Pentair, Inc. 66,138
2,363 Wausau Paper Mills Company 47,260
----------
176,730
----------
PRECISION INSTRUMENTS 1.48%
2,000 Ametek, Inc. 43,500
1,800 Beckman Instruments, Inc. 68,175
1,200 Credence Systems Corp. * 16,125
900 Measurex Corporation 26,325
----------
154,125
----------
RETAIL 3.97%
600 Blair Corporation 14,250
2,000 Cato Corporation 11,875
6,600 Charming Shoppes, Inc. * 46,200
1,600 Dress Barn, Inc. * 17,000
1,900 Duty Free International, Inc. 28,856
1,600 Eagle Hardware & Garden, Inc. * 24,300
</TABLE>
See accompanying notes to financial statements
16
<PAGE> 39
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Shares Common Stock Value
------ ------------ -----
<S> <C> <C>
RETAIL - Continued
1,800 Fred Meyer Inc. * $ 52,875
5,900 Home Shopping Network, Inc. * 71,169
1,700 Intelligent Electronics, Inc. 14,344
2,100 Lands' End, Inc. * 51,713
1,800 MacFrugal's Bargains-Closeouts, Inc. * 32,175
1,400 Ross Stores, Inc. 48,738
--------
413,495
--------
SERVICES 8.64%
1,200 Airborne Freight Corporation 31,200
900 Alaska Air Group, Inc. * 24,638
1,800 Arnold Industries, Inc. 25,425
1,800 Banta Corp. 45,563
2,500 Calgon Carbon Corp. 33,750
1,906 Chris-Craft Industries, Inc. * 83,864
1,100 Gibson Greetings, Inc. * 15,194
1,500 Golden Books Family Entertainment, Inc. * 18,188
800 Houghton Mifflin Company 39,800
2,600 Hunt (J. B.) Transport Services, Inc. 54,438
1,600 International Dairy Queen, Inc. * 34,600
1,500 Luby's Cafeterias, Inc. 35,344
1,100 New England Business Service, Inc. 21,381
2,200 Pixar * 42,625
1,000 Pulitzer Publishing Co. 59,313
1,100 Ruby Tuesday Inc. 24,819
1,200 Sbarro Incorporated 30,075
1,000 Shorewood Packaging Corp. * 15,313
1,500 TCA Cable TV Incorporated 45,000
3,600 USAIR Group Inc. * 65,025
1,400 Wallace Computer Services, Inc. 83,563
1,900 World Color Press Inc. * 48,213
1,800 Yellow Corporation * 23,738
--------
901,069
--------
STEEL & IRON 1.16%
1,500 AK Steel Holding Corp. 59,063
1,800 Birmingham Steel Corporation 29,475
1,000 Carpenter Technology Corporation 32,000
--------
120,538
--------
OTHER INDUSTRIAL CYCLICALS 4.00%
1,800 ACX Technologies, Inc. * $ 36,000
1,100 Brush Wellman Inc. 20,831
1,000 Carlisle Companies Inc. 53,125
1,200 Cross (A. T.) Company 21,225
2,200 Data General Corporation * 28,738
1,000 Handy and Harman 17,000
600 MAXXAM Inc. * 23,550
2,100 OMI Corporation * 18,113
2,300 Overseas Shipholding Group, Inc. 41,688
2,000 Standard Register Company 49,375
11,800 Sunshine Mining Company * 15,488
1,400 Verifone, Inc. * 59,413
1,100 West Company Incorporated 33,000
--------
417,546
--------
UTILITIES 5.57%
1,000 Central Hudson Gas & Electric Corp. 31,250
900 CILCORP Inc. 38,588
1,200 Eastern Utilities Associates 23,550
1,700 IES Industries, Inc. 50,788
1,867 International CableTel, Inc. * 55,281
1,650 MDU Resources Group, Inc. 35,475
900 Orange & Rockland Utilities, Inc. 33,075
2,600 Public Service Company of New Mexico 53,138
1,500 Sierra Pacific Resources Holding Co. 38,156
900 Southern Indiana Gas & Electric Co. 31,163
1,980 Tucson Electric Power Company * 26,978
2,100 UGI Corporation 46,200
800 U. S. Long Distance Corp. * 28,250
2,500 Vanguard Cellular Systems, Inc. * 54,844
1,700 Washington Energy Company 33,788
--------
580,524
--------
MISCELLANEOUS 2.28%
1,000 Avid Technology Inc. * 18,438
2,700 Bally Entertainment Corporation * 74,419
1,100 FoxMeyer Health Corporation 16,431
</TABLE>
See accompanying notes to financial statements
17
<PAGE> 40
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Shares Common Stock Value
------ ------------ -----
<S> <C> <C>
MISCELLANEOUS - Continued
2,500 Grand Casinos Inc. * $ 64,375
1,300 Kimball International, Inc. 35,831
2,000 Station Casinos, Inc. * 28,625
------------
238,119
------------
TOTAL COMMON STOCKS 94.86% 9,890,365
(cost $9,265,483)
Contracts
PUT OPTIONS ON THE STANDARD & POOR'S 500
STOCK INDEX 0.17%
75 expiring August 16, 1996 at 630 18,281
(cost $37,763)
REPURCHASE AGREEMENT 5.40%
5% repurchase agreement dated June 28, 1996
with Star Bank, N.A., due July 1, 1996
(repurchase proceeds $563,235),
collateralized by $600,000
6% GNMA Pool #8974, maturity May 20, 2022
(market value $607,500) 563,000
------------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENT 100.43% 10,471,646
OTHER ASSETS AND LIABILITIES, NET (0.43%)
(45,160)
------------
NET ASSETS 100% $10,426,486
===========
* Denotes a non-income producing security.
</TABLE>
GATEWAY SMALL CAP INDEX FUND
Statement of Assets and Liabilities - June 30, 1996 (unaudited)
<TABLE>
<S> <C>
ASSETS:
Common stocks, at value (original cost $9,265,483) $ 9,890,365
Put options, at value (original cost $37,763) 18,281
Repurchase agreement 563,000
Receivable for fund shares sold 15,320
Dividend and interest receivable 12,389
Cash 515
Other assets 12,261
-----------
10,512,131
------------
LIABILITIES:
Payable for fund shares redeemed 77,222
Other accrued expenses and liabilities 8,423
------------
85,645
------------
NET ASSETS $10,426,486
------------
NET ASSETS CONSIST OF:
Paid-in capital applicable to 868,458 shares outstanding
(unlimited number of shares authorized, no par value) $ 9,090,224
Overdistributed net investment income (898)
Accumulated realized gain, net 731,760
Unrealized appreciation, net 605,400
-----------
$10,426,486
------------
NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER SHARE
$ 12.01
===========
</TABLE>
See accompanying notes to financial statements
18
<PAGE> 41
GATEWAY SMALL CAP INDEX FUND
Statement of Operations - For the Six Months Ended June 30, 1996 (unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income $ 70,873
Interest income 5,195
--------
76,068
--------
EXPENSES:
Investment advisory and management fees 44,601
Transfer agent and accounting fees 38,761
Reports to shareholders 10,069
Professional fees 8,249
Registration fees 7,508
Custodian fees 5,701
Trustees' fees 3,744
Other expenses 2,934
--------
121,567
Fees waived under contract (44,601)
--------
76,966
--------
NET INVESTMENT LOSS (898)
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on investments:
Securities 758,640
Put options expired and closed (60,470)
--------
Net realized gain on investments 698,170
--------
Change in unrealized appreciation
(depreciation) of investments:
Securities 89,202
Put options 6,563
--------
Change in net unrealized appreciation (depreciation)
of investments 95,765
--------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 793,935
--------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $793,037
========
</TABLE>
GATEWAY SMALL CAP INDEX FUND
Statements of Changes in Net Assets (unaudited)
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ (898) $ 8,585
Net realized gain on investments 698,170 498,112
Change in unrealized appreciation
(depreciation) of investments 95,765 1,350,501
------------ -----------
Net increase in net assets resulting from 793,037 1,857,198
------------ -----------
operations
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS:
From net investment income -- (8,585)
From net realized gain on investments -- (538,981)
------------ -----------
Decrease in net assets from dividends
and distributions -- (547,566)
------------ -----------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 933,304 1,238,323
Net asset value of shares issued in
reinvestment -- 522,299
of dividends and distributions
Payments for shares redeemed (717,892) (3,309,369)
------------ -----------
Net increase (decrease) in net assets from
fund share transactions 215,412 (1,548,747)
------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS 1,008,449 (239,115)
NET ASSETS:
Beginning of period 9,418,037 9,657,152
----------- -----------
End of period $10,426,486 $ 9,418,037
=========== ===========
FUND SHARE TRANSACTIONS:
Shares sold 78,698 117,773
Shares issued in reinvestment of dividends
and distributions -- 47,267
Less shares redeemed (62,338) (315,501)
------------ -----------
NET INCREASE (DECREASE) IN
SHARES OUTSTANDING 16,360 (150,461)
============== ============
</TABLE>
See accompanying notes to financial statements
19
<PAGE> 42
GATEWAY SMALL CAP INDEX FUND
Financial Highlights (unaudited)
<TABLE>
<CAPTION>
Six Months Year Ended Period Ended
Ended December 31, December 31,
June 30, 1996 1995 (5) 1994 1993 (1)
------------- -------- ---- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $11.05 $ 9.63 $10.35 $10.00
------ ------- ------ ------
Net investment income (loss) 0.00 0.03 (0.02) 0.04
Net gains (losses) on securities 0.96 2.07 (0.60) 0.61
------ ------- ------ ------
Total from investment operations 0.96 2.10 (0.62) 0.65
------ ------- ------ ------
Dividends from net investment income 0.00 (0.01) 0.00 (0.04)
Distributions from capital gains 0.00 (0.67) (0.10) (0.26)
------ ------- ------ ------
Total distributions 0.00 (0.68) (0.10) (0.30)
------ ------- ------ ------
Net asset value, end of period $12.01 $11.05 $ 9.63 $10.35
====== ====== ======= ======
TOTAL RETURN 8.69%(3) 21.81% (5.99%) 6.50%(3)
Net assets, end of period (millions) $10.43 $ 9.42 $ 9.66 $13.00
Ratio of net expenses to average
net assets (2) 1.55% 1.68% 2.00% 1.92%
Ratio of net investment income (loss)
to average net assets (2) (0.02%) 0.09% (0.14%) 0.98%
Portfolio turnover rate 18%(3) 20% 39% 3%(3)
Average commission per share (4) $ 0.04 n/a n/a n/a
</TABLE>
(1) The Small Cap Index Fund commenced operations on June 16, 1993.
(2) The ratios of net expenses to average net assets would have increased
and the 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) Pursuant to new reporting requirements, average commission per share is
presented for 1996.
(5) On December 15, 1995, Gateway Investment Advisers, L.P. became investment
adviser of the Fund.
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 (unaudited)
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 semi-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 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 in December.
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> 43
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 (unaudited)
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 1996,
the Adviser has agreed to voluntarily waive some or all of its advisory fee if
the Small Cap's expense ratio exceed 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 six months ended June 30, 1996, the
Adviser waived advisory fees of $26,715 for Mid Cap and $44,601 for Small Cap.
Additionally for 1996, 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 $11,044 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 June 30, 1996, the Adviser held in a fiduciary capacity 56.61% of Mid Cap's
outstanding shares, and 49.41% of Small Cap's outstanding shares.
3. SECURITIES TRANSACTIONS
For the six months ended June 30, 1996, purchases and proceeds from sales of
common stocks are as follows:
<TABLE>
<CAPTION>
MID CAP SMALL CAP
------- ---------
<S> <C> <C>
Purchases of investment securities $496,635 $1,761,464
Proceeds from sales of investment securities 515,766 2,061,093
</TABLE>
The Funds may write (sell) call options on stock indexes 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 indexes. 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 the portfolio value.
4. UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS
Unrealized appreciation (depreciation) of common stocks at June 30, 1996, based
on the cost of investments, is as follows:
<TABLE>
<CAPTION>
MID CAP SMALL CAP
------- ---------
<S> <C> <C>
Gross unrealized appreciation $1,373,999 $1,728,559
Gross unrealized depreciation (374,555) (1,103,677)
---------- ----------
Net unrealized appreciation (depreciation) $ 999,444 $ 624,882
========== ==========
</TABLE>
21
<PAGE> 44
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
R. S. Harrison
John F. Lebor
Walter G. Sall
William H. Schneebeck
Peter W. Thayer
22
<PAGE> 45
Member of 100% No-Load Mutual Fund Council
[insert Statue of Liberty logo]
THE GATEWAY TRUST
P. O. BOX 45201-5211
CINCINNATI, OH 45201-5211
(800) 354-6339
<PAGE> 46
August 6, 1996
Dear :
We are pleased to enclose your Semi-Annual Report on the Mid Cap and Small Cap
Index Funds. The report provides portfolio values as of June 30, 1996, and
comparative rates of return for the twelve-month, six-month, and three-month
periods ending at mid-year. The second quarter of 1996 marks the sixth
consecutive quarter of gains from both your funds.
Please focus attention on the Co-Portfolio Managers' Report on pages 2 and 3.
Co-portfolio managers Pete Thayer and Patrick Rogers discuss stock market
returns, the effects of risk-reducing hedging transactions, dividend
distributions, and fund operating expenses. It is the combination of these
factors that gives each of the two funds a different risk profile than that
which characterizes their respective sector portfolios.
On behalf of the entire staff at Gateway, we appreciate the confidence you have
placed with us. We look forward to continuing to help you meet your investment
goals!
Cordially,
/s/Walter G. Sall
- -------------------------
Walter G. Sall
Chairman
<PAGE> 47
CINCINNATI
FUND
SEMI-ANNUAL
REPORT
1996
CINCINNATI
FUND
P.O. BOX 5211 / CINCINNATI, OHIO 45201-5211
(800) 354-5525
<PAGE> 48
CINCINNATI FUND
Highlights at June 30, 1996
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------------------
Since
Past One Three Five Ten Inception Price
Quarter Year Years Years Years on 11/7/94 Per Share
------- ---- ----- ----- ----- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Cincinnati Fund 1.55% 26.77% n/a n/a n/a 26.72% $14.45
S&P 500 4.49 26.00 17.22 15.73 13.78
Lehman Gov't/Corp. Bond 0.47 4.66 5.16 8.48 8.41
U. S. Inflation (CPI) 0.67 2.79 2.77 2.88 3.66
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------------------------
Past One Three Five Ten Since Inception
Quarter Year Years Years Years on 11/7/94
------- ---- ----- ----- ----- ---------------
<S> <C> <C> <C> <C> <C> <C>
Cincinnati Fund 1.55% 26.77% n/a n/a n/a 47.68%
S&P 500 4.49 26.00 61.08 107.59 263.57
Lehman Gov't/Corp. Bond 0.47 4.66 16.29 50.24 124.25
U. S. Inflation (CPI) 0.67 2.79 8.55 15.26 43.25
</TABLE>
Performance data throughout this report represents past performance. The average
annual total return figures assume the reinvestment of dividends. 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.
CINCINNATI FUND 1
<PAGE> 49
CINCINNATI FUND
Letter from the Chairman
Dear Shareholder:
We are pleased to report that, historically, and currently, the Greater
Cincinnati Area is a great place to invest. In the first half of 1996, the
Cincinnati Fund's portfolio of companies that conduct business locally has
continued its fine record of growth.
In this report, portfolio manager Patrick Rogers explains the current
portfolio mix and changes made in security positions over the past six months.
I have great confidence that Cincinnati will remain an excellent city in which
to live and transact business. Its virtues should allow the companies that
comprise the Cincinnati Fund to provide continued opportunities for long-term
growth.
Finally, I take great pleasure in announcing the appointment of R. S. Harrison
to The Gateway Trust Board of Trustees. Mr. Harrison is chairman of Baldwin
Piano & Organ Co. and serves as a director of several corporations. He brings a
wealth of financial and managerial skills with him, and, on behalf of fellow
boardmembers and shareholders, I welcome him to the Board of Trustees.
Cordially,
/s/ Walter G. Sall
Walter G. Sall
Chairman
2 CINCINNATI FUND
<PAGE> 50
CINCINNATI FUND
Portfolio Manager's Report
The Cincinnati Fund continued to post impressive gains during the first six
months of 1996, producing a total return of 10.14%. This performance is
slightly ahead of the 10.10% for the S&P 500 Stock Index over the same time
period. Since inception on November 7, 1994, the Cincinnati Fund has produced
a total return of 47.68%, which is 26.72% annualized.
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Top Ten Holdings
As of June 30, 1996
- ----------------------------------------------------------
<S> <C>
Cinergy Corp. 6.00%
Kroger Co. 5.46%
Procter & Gamble Co. 5.33%
Cincinnati Bell Inc. 4.77%
General Electric Company 4.29%
Comair Holdings, Inc. 3.91%
Cincinnati Financial Corp. 3.86%
Federated Department Stores, Inc. 2.58%
Structural Dynamics Research Corp. 2.57%
Star Banc Corp. 2.55%
- ----------------------------------------------------------
</TABLE>
A comparison of the top ten holdings as of June 30, 1996 to year end 1995
includes:
- Cinergy, the parent company of Cincinnati Gas & Electric, is now the
top holding in the Fund. Our local utility company boasts two favorable
investment characteristics: an above-average dividend yield and a
strong position to prosper during a period of deregulation and
consolidation in the utility industry.
- Comair, the area's regionally based airline and "Delta Connection"
carrier, has enjoyed tremendous growth over the past eighteen months.
Since March 1995, we have steadily increased our position in Comair to
a level where it is now one of the top ten holdings in the Fund.
CINCINNATI FUND 3
<PAGE> 51
CINCINNATI FUND
Portfolio Manager's Report
- Structural Dynamics Research Corp. (SDRC) also populates the top ten
holdings for the first time. The Milford-based developer of engineering
computer software has also enjoyed outstanding growth over the past two
years. Earlier this year, SDRC announced the signing of a much
anticipated, five-year, $200 million contract with Ford Motor Company.
- We have slightly reduced our weighting in Star Bank. This is not a
result of any fundamental change in Cincinnati's second largest bank.
Rather, Star Bank's stock has risen 100% over the past eighteen months,
reaching a price of $70.00 per share. At this price level, we decided
to realize gains in the portfolio.
Largest Sector Weightings
Although the finance sector remains the largest industry weighting, its
allocation is slightly lower than at year end. This is due mainly to small
decreases in positions of Cincinnati's three largest banks: Fifth Third,
Provident, and Star.
The services industry has an increased allocation from year end. A higher
weighting in Comair and Jacor Communications has led this sector to the second
highest in the Cincinnati Fund.
Additions and Deletions
The Cincinnati Fund added two new stocks to the portfolio during the first half
of 1996. Duke Realty Investments, Inc. and Ashland Oil, Inc. have met the
criteria to be included in the Fund and serve as excellent diversifiers for the
portfolio. One of our concerns for the Fund is the impact of higher inflation on
the portfolio. The inclusion of these two stocks should help mitigate any
negative effects should inflation rise.
Duke Realty is an Indianapolis-based real estate firm engaged in the development
and management of industrial, office, and retail properties. Their presence in
Cincinnati is extensive, particularly in downtown and suburban office space.
4 CINCINNATI FUND
<PAGE> 52
CINCINNATI FUND
Portfolio Manager's Report
Ashland Oil, Inc. is a leading independent petroleum refiner, producing a full
range of products, including Valvoline Motor Oil. The Ashland, Kentucky-based
company also manufactures chemicals and engages in oil and gas explorations,
highway construction, and coal mining. Their presence in Cincinnati is larger
than you may think. Our area is "home" to forty-one SuperAmerica stations, the
company's retailer of its gasoline products. Additionally, the company has
twenty Valvoline Instant Oil Change locations in the Tri-state. Finally, Ashland
Oil has a large distribution and storage facility along the Ohio River in
western Hamilton County.
A few stocks were removed from the portfolio during the first six months of
1996. Kentucky Enterprise Bank was merged into Fifth Third Bancorp. Manhattan
Life Insurance was removed due to the lack of liquidity necessary for a stock to
be held in the Fund. Lastly, due to the recent appointment of Mr. R. S. Harrison
to the Fund's Board of Trustees, the Cincinnati Fund was required to sell its
entire position of Baldwin Piano and Organ Co. Mr. Harrison is Baldwin's
chairman.
Since its inception, we have enjoyed a terrific period of stock market growth in
the Cincinnati Fund. As we stated in the annual report a few months ago, history
tells us that this type of growth is not sustainable. However, we believe the
Cincinnati Fund remains an excellent vehicle for investors interested in
long-term growth of capital. We look forward to the challenges during the
remainder of 1996 and the years to come.
/s/ J. Patrick Rogers
J. Patrick Rogers, CFA
Portfolio Manager
CINCINNATI FUND 5
<PAGE> 53
CINCINNATI FUND
Industry Weightings - June 30, 1996
[insert pie chart}
<TABLE>
<S> <C>
Utilities 13.04%
Finance 15.95%
Industrial Cyclicals 9.54%
Energy 1.03%
Consumer Durables 4.52%
Consumer Staples 9.22%
Services 14.95%
Retail 11.42%
Health 5.75%
Technology 9.44%
</TABLE>
As a percentage of net assets
6 CINCINNATI FUND
<PAGE> 54
CINCINNATI FUND
Portfolio of Investments - June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Shares Common Stocks Value
<S> <C> <C>
UTILITIES 13.04%
2,800 AT&T Corporation $ 173,950
7,000 Cincinnati Bell Inc. 365,750
14,400 Cinergy Corp. 459,900
-----------
999,600
-----------
ENERGY 1.03%
2,000 Ashland Oil Inc. 79,250
-----------
FINANCE 15.95%
2,500 American Annuity Group, Inc. 32,656
1,000 American Financial Enterprises, Inc. 24,500
1,800 American Financial Group, Inc. 54,450
660 Banc One Corp. 22,481
5,143 Cincinnati Financial Corp. 296,044
2,500 Duke Realty Investments, Inc. 75,625
2,123 Fifth Third Bancorp 114,377
700 First Financial Bancorp 22,838
840 Huntington Bancshares Inc. 20,160
3,300 McDonald & Company Investments, Inc. 64,763
800 Midland Co. 33,600
3,000 Ohio Casualty Corp. 105,000
800 PNC Bank Corp. 23,800
3,450 Provident Bancorp, Inc. 122,044
2,900 Star Banc Corp. 195,569
1,000 Suburban Bancorporation, Inc. 14,750
-----------
1,222,657
-----------
INDUSTRIAL CYCLICALS 9.54%
4,000 AK Steel Holding Corp. 157,500
800 Champion International Corp. 33,300
3,700 Chemed Corporation 137,363
7,000 Cincinnati Milacron, Inc. 168,000
300 Corning Inc. 11,531
600 International Paper Co. 22,163
5,000 LSI Industries Inc. 85,000
1,500 Monsanto Company 48,656
4,300 Multi-Color Corp. * 29,025
6,000 NS Group, Inc. * 18,000
1,500 Zaring Homes, Inc. * 20,063
-----------
730,601
-----------
</TABLE>
See accompanying notes to financial statements
CINCINNATI FUND 7
<PAGE> 55
CINCINNATI FUND
Portfolio of Investments - June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Shares Common Stocks Value
<S> <C> <C>
CONSUMER DURABLES 4.52%
1,800 Cintas Corp. $ 95,625
4,500 Ford Motor Company 145,688
1,600 General Motors Corp. 83,800
600 Hasbro, Inc. 21,488
------------
346,601
------------
CONSUMER STAPLES 9.22%
800 Avon Products, Inc. 36,100
3,500 Chiquita Brands International, Inc. 45,719
1,800 Heinz (H. J.) Co. 54,675
3,600 PepsiCo, Inc. 127,575
4,500 Procter & Gamble Co. 408,094
300 Sara Lee Corp. 9,713
1,500 Super Food Services, Inc. 14,250
300 Sysco Corp. 10,256
------------
706,382
------------
SERVICES 14.95%
1,800 Citicasters Inc. 56,475
11,025 Comair Holdings, Inc. 299,742
200 CSX Corp. 9,650
2,300 Delta Air Lines, Inc. 190,756
4,222 Frisch's Restaurants, Inc. 49,081
1,200 Gannett Co., Inc. 84,900
5,300 Gibson Greetings, Inc. * 73,206
4,500 Jacor Communications, Inc. * 139,781
1,800 McDonald's Corp. 84,038
2,300 Scripps (E. W.) Co. 107,381
3,000 Skyline Chili, Inc. * 12,188
600 Time Warner, Inc. 23,513
800 Wendy's International, Inc. 14,900
-----------
1,145,611
------------
RETAIL 11.42%
5,800 Federated Department Stores, Inc. * 197,925
10,600 Kroger Co. * 418,700
2,700 Mercantile Stores Company, Inc. 157,950
1,000 Nine West Group, Inc. * 51,000
1,400 Winn Dixie Stores, Inc. 49,438
-----------
875,013
------------
</TABLE>
See accompanying notes to financial statements
8 CINCINNATI FUND
<PAGE> 56
CINCINNATI FUND
Portfolio of Investments - June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Shares Common Stocks Value
<S> <C> <C>
HEALTH 5.75%
5,500 Duramed Pharmaceuticals, Inc. * $ 83,188
2,600 Johnson & Johnson 128,863
4,522 Meridian Diagnostics, Inc. 69,243
6,000 Omnicare, Inc. 159,000
-----------
440,294
-----------
TECHNOLOGY 9.44%
4,500 Cincinnati Microwave Inc. * 16,031
3,800 General Electric Company 328,455
800 International Business Machines Corp. 79,250
4,000 International Lottery, Inc. * 41,500
300 Litton Industries, Inc. * 13,088
3,300 Pomeroy Computer Resources, Inc. * 48,263
9,000 Structural Dynamics Research Corp. * 196,875
-----------
723,462
-----------
TOTAL COMMON STOCKS 94.86% 7,269,471
(Cost $5,442,513)
REPURCHASE AGREEMENT 6.03%
5% repurchase agreement dated June 28, 1996 with
Star Bank, N.A., due July 1, 1996 (repurchase
proceeds $462,193), collateralized by $495,000
6% GNMA Pool #8974, maturity May 20, 2022
(market value $501,187) 462,000
OTHER ASSETS AND LIABILITIES, NET (0.89%) (68,007)
------------
NET ASSETS 100% $7,663,464
============
</TABLE>
* Denotes a non-income producing security.
See accompanying notes to financial statements
CINCINNATI FUND 9
<PAGE> 57
CINCINNATI FUND
Statement of Assets and Liabilities - June 30, 1996 (unaudited)
<TABLE>
<S> <C>
ASSETS:
Common stocks, at value (original cost $5,442,513) $7,269,471
Repurchase agreement 462,000
Dividend and interest receivable 6,842
Receivable for fund shares sold 2,338
Cash 847
Other assets 13,163
----------
7,754,661
----------
LIABILITIES:
Payable for fund shares redeemed 83,427
Accrued expenses and liabilities 7,770
----------
91,197
----------
NET ASSETS $7,663,464
==========
NET ASSETS CONSIST OF:
Paid-in capital applicable to 530,337 shares outstanding
(unlimited number of shares authorized, no par value) $5,764,546
Undistributed net investment income 3,417
Accumulated realized gain, net 68,543
Unrealized appreciation, net 1,826,958
----------
$7,663,464
==========
NET ASSET VALUE, OFFERING, AND REDEMPTION
PRICE PER SHARE $14.45
==========
</TABLE>
See accompanying notes to financial statements
10 CINCINNATI FUND
<PAGE> 58
CINCINNATI FUND
Statement of Operations
For the Six Months Ended June 30, 1996 (unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income $ 50,951
Interest income 21,022
------------
71,973
------------
EXPENSES:
Transfer agent and accounting fees 38,760
Investment advisory and management fees 17,177
Professional fees 7,256
Reports to shareholders 6,843
Custodian fees 4,425
Trustees' fees 3,366
Registration fees 1,181
Other expenses 1,319
------------
80,327
Fees waived under contract (11,315)
Fees waived voluntarily (456)
------------
68,556
------------
NET INVESTMENT INCOME 3,417
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 66,677
Change in net unrealized appreciation of investments 574,603
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 641,280
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 644,697
============
</TABLE>
See accompanying notes to financial statements
CINCINNATI FUND 11
<PAGE> 59
CINCINNATI FUND
Statement of Changes in Net Assets (unaudited)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
FROM OPERATIONS:
<S> <C> <C>
Net investment income $ 3,417 $ 21,591
Net realized gain on investments 66,677 96,868
Change in unrealized appreciation (depreciation)
of investments 574,603 1,284,165
------------ -----------
Net increase in net assets resulting from operations 644,697 1,402,624
------------ -----------
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 1,581,118 1,642,766
Net asset value of shares issued in reinvestment of
dividends and distributions -- 123,748
Payments for shares redeemed (439,209) (390,897)
------------ ------------
Net increase in net assets from fund share transactions 1,141,909 1,375,617
----------- -----------
NET INCREASE IN NET ASSETS 1,786,606 2,651,645
NET ASSETS:
Beginning of period 5,876,858 3,225,213
----------- -----------
End of period, including undistributed net
investment income of $3,417 and $0, respectively $7,663,464 $5,876,858
========== ==========
FUND SHARE TRANSACTIONS:
Shares sold 113,453 144,900
Shares issued in reinvestment of dividends and distributions -- 9,432
Less shares redeemed (31,204) (31,771)
------------- -------------
NET INCREASE IN SHARES OUTSTANDING 82,249 122,561
============= ============
</TABLE>
See accompanying notes to financial statements
12 CINCINNATI FUND
<PAGE> 60
CINCINNATI FUND
Financial Highlights (unaudited)
<TABLE>
<CAPTION>
Six Months Year Ended Period Ended
Ended December 31, December 31,
June 30, 1996 1995 (5) 1994 (1)
------------- ---- ----
<S> <C> <C> <C>
Net asset value, beginning of period $13.12 $ 9.91 $10.00
------ ------- ------
Net investment income 0.01 0.04 0.03
Net gains (losses) on securities 1.32 3.46 (0.12)
------- ------- -------
Total from investment operations 1.33 3.50 (0.09)
------- -------- -------
Dividends from net investment income 0.00 (0.07) 0.00
Distributions from capital gains 0.00 (0.22) 0.00
------- -------- -------
Total distributions 0.00 (0.29) 0.00
------- ------- -------
Net asset value, end of period $14.45 $13.12 $ 9.91
====== ====== =======
TOTAL RETURN 10.14% (3) 35.31% (0.90%) (3)
Net assets, end of period (millions) $7.66 $5.88 $3.23
Ratio of net expenses to average net 1.99% 1.98% 1.96%
assets (2)
Ratio of net investment income to
average net assets (2) 0.10% 0.46% 2.24%
Portfolio turnover rate 4% (3) 9% 0% (3)
Average commission per share (4) $0.04 n/a n/a
</TABLE>
(1) The Cincinnati Fund commenced operations on November 7, 1994.
(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 0.01%, 0.02%, and 0.04% in 1996, 1995, and 1994,
respectively, had the Adviser not voluntarily reimbursed expenses and
waived fees. Ratios are annualized in periods less than a year.
(3) Not annualized.
(4) Pursuant to new reporting requirements, average commission per share is
presented for 1996.
(5) On December 15, 1995, Gateway Investment Advisers, L.P. became
investment adviser to the Fund.
See accompanying notes to financial statements
CINCINNATI FUND 13
<PAGE> 61
CINCINNATI FUND
Notes to Financial Statements - June 30, 1996 (unaudited)
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 operations on November 7, 1994. Gateway
Index Plus Fund, Gateway Mid Cap Index Fund, and Gateway Small Cap Index Fund
are included in separate semi-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 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.
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).
14 CINCINNATI FUND
<PAGE> 62
CINCINNATI FUND
Notes to Financial Statements - June 30, 1996 (unaudited)
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 as necessary to
limit the Fund's expenses to this level. As a result for the six months ended
June 30, 1996, the Adviser waived management fees of $11,771.
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 June 30, 1996, the Adviser held in a fiduciary capacity 15.02% of the
outstanding shares of the Fund.
3. SECURITIES TRANSACTIONS
For the six months ended June 30, 1996, purchases of investment securities
(excluding short-term investments) totaled $1,711,371, and proceeds from sales
totaled $244,382.
4. UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS
At June 30, 1996, gross unrealized appreciation of common stocks totaled
$1,868,841 and gross unrealized depreciation totaled ($41,883), based on the
cost of investments.
CINCINNATI FUND 15
<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
R. S. Harrison
John F. Lebor
Walter G. Sall
William H. Schneebeck
Peter W. Thayer
16 CINCINNATI FUND
<PAGE> 64
INVEST IN CINCINNATI
INVEST IN YOUR FUTURE!
[insert picture of Cincinnati skyline]
BEFORE YOU LOOK VERY FAR, CONSIDER THE POTENTIAL OF THE COMPANIES CLOSEST TO
YOU. THEN CONSIDER THE CINCINNATI FUND. A 100% NO-LOAD MUTUAL FUND FEATURING A
DIVERSE GROUP OF HOMETOWN STOCKS.
CINCINNATI
FUND
248-2300 * (800)354-5525
ONE-YEAR
TOTAL RETURN
26.77%
PERIOD ENDING 6/30/96
AVERAGE ANNUAL
TOTAL RETURN
SINCE INCEPTION
11/7/97-6/30/96
26.72%
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. YOUR INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE
ORIGINAL COST.
This report must be preceded or accompanied by a current prospectus.
<PAGE> 65
August 16, 1996
Dear:
We are pleased to enclose your Semi-Annual Report on the Cincinnati
Fund. The report provides portfolio values as of June 30, 1996, and comparative
rates of return for the twelve-month, six-month, and three-month periods ending
at mid-year. The second quarter of 1996 marks the sixth consecutive quarter of
gains from your fund.
Please focus attention on the Portfolio Manager's Report on pages 3
through 5. Portfolio Manager Patrick Rogers discusses stock market returns, the
effects of the weightings of various industry groups, and some of the changes
that aided the Fund's investment results in the first six months of 1996. It is
the combination of these factors that gives the Cincinnati Fund the excellent
returns it has enjoyed since its inception in November 1994.
On behalf of our entire staff, we appreciate the confidence you have
placed with us. We look forward to continuing to help you meet your investment
goals!
Sincerely,
/s/ Walter G. Sall
---------------------------
Walter G. Sall
Chairman
