GATEWAY TRUST, 497, 1997-05-05

GATEWAY TRUST
497, 1997-05-05

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<PAGE> 1
PROSPECTUS

May 1, 1997

GATEWAY INDEX PLUS FUND

The Index Plus Fund seeks a high total return at a reduced level of risk.
The Fund is designed for conservative investors whose investment objective is to
maximize total rate of return over the long term.

The Fund invests in the 100 stocks included in the S&P 100 Stock Index.
The Fund's portfolio duplicates the composition of the S&P 100 Index. The Fund
also sells call options on the S&P 100 Index and, as the seller, receives cash
from the purchasers of the options. By selling index options, the Fund attempts
to earn a greater total return over the long term than it would earn by
investing only in the stocks in the S&P 100 Index. Selling call options reduces
the risk of owning stocks, but limits the opportunity to profit from an increase
in the market value of stocks. The Fund occasionally buys index put options in
an attempt to protect the Fund from a significant market decline in a short
period of time. The value of a put option generally increases as stock prices
decrease.

GATEWAY MID CAP INDEX FUND

The Mid Cap Index Fund, designed for a more aggressive investor, seeks
long-term growth of capital with a secondary objective of conserving principal.
The Fund invests in the 400 stocks included in the S&P MidCap 400 Index. The
Fund's portfolio generally parallels the composition of the S&P MidCap 400
Index. The S&P MidCap 400 Index consists of the common stock of 400 companies
with a median market capitalization of approximately $2.3 billion, selected to
reflect the stock price performance of companies in the middle capitalization
range. At times, the Fund may purchase index put options to reduce the risk of
principal loss and may also buy index call options to increase the potential for
gain.

GATEWAY SMALL CAP INDEX FUND

The Small Cap Index Fund, also designed for a more aggressive investor,
seeks long-term growth of capital. The Fund invests in the 250 stocks included
in the Wilshire Small Cap Index. The Fund's portfolio generally parallels the
composition of the Wilshire Small Cap Index. The Wilshire Small Cap Index
consists of the common stock of 250 companies with a median market
capitalization of approximately $818 million, selected to reflect the general
characteristics and performance profile of small companies. At times, the Fund
may purchase index put options to reduce the risk of principal loss and may also
buy index call options to increase the potential for gain.

RISK FACTORS RELATED TO INDEX OPTION TRANSACTIONS

Option transactions on securities indexes involve risks not generally
associated with investments in stocks. The sale of call options limits a fund's
opportunity to profit from an increase in the market value of the underlying
index. The purchase of options involves the risk of loss of all or part of the
cash paid for the options. The use of options to protect a fund's portfolio will
not fully protect the fund against declines in the value of its portfolio. A
fund could experience a loss on both its portfolio securities and the options
used to hedge these securities. Unusual market conditions, the lack of a ready
market for any particular option at a specific time, or restrictions imposed by
regulatory agencies may adversely affect a fund's hedging strategy. Additional
information about various risk factors and each fund's investment practices,
strategies, and restrictions is located on pages 22 through 26 of this
Prospectus.

THE GATEWAY FAMILY OF MUTUAL FUNDS

Each fund is a series of The Gateway Trust ("Trust"). This Prospectus
sets forth concisely the information about the funds that you should know before
investing. You should keep it for future reference. Additional information has
been filed with the Securities and Exchange Commission (the "SEC") and is
included in the Statement of Additional Information (the "SAI") of The Gateway
Trust dated May 1, 1997. The SAI is incorporated herein by reference. You can
obtain more information about the funds or free copies of the SAI by writing or
calling: THE GATEWAY TRUST, P. O. BOX 5211, CINCINNATI, OH 45201-5211, (800)
354-6339. The SEC maintains a Web Site (http://www.sec.gov) that contains the
SAI, material incorporated by reference, and other information regarding
registrants that file electronically with the SEC.

THE SECURITIES AND EXCHANGE COMMISSION DOES NOT APPROVE SHARES OF ANY MUTUAL
FUND. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

<PAGE> 2

TABLE OF CONTENTS
<TABLE>

<S> <C> <C>
FEES AND EXPENSES ___ All Gateway funds are 100% no-load. There are no sales charges, 12b-1
fees, redemption fees, or annual account charges when you invest in a
Gateway fund.

FINANCIAL HIGHLIGHTS ___ Tables displaying financial information for each fund.

HOW TO OPEN A GATEWAY ACCOUNT ___ New investors can open an account by mail or by telephone.

HOW TO PURCHASE ADDITIONAL SHARES ___ Shares may be purchased by check, by wire transfer, or by automatic
withdrawals from your bank account.

HOW TO REDEEM SHARES ___ Redemption requests can be made by mail or by telephone.

ADDITIONAL SHAREHOLDER INFORMATION ___ Additional information about buying and selling shares.

GATEWAY PERFORMANCE ___ Total return information.

EXPLANATION OF INVESTMENT TERMS ___ Glossary of investment terms.

INDEX PLUS FUND INFORMATION ___ Graphs and tables showing fund performance, risk/reward and top ten
holdings for the Index Plus Fund.

MID CAP INDEX FUND INFORMATION ___ Graph and tables showing fund performance and top ten holdings for the
Mid Cap Index Fund.

SMALL CAP INDEX FUND INFORMATION ___ Graph and tables showing fund performance and top ten holdings for the
Small Cap Index Fund.

PORTFOLIO MANAGER PROFILE ___ Profile of the portfolio manager.

DIVIDENDS AND DISTRIBUTIONS ___ Investors may reinvest their dividends and distributions at no charge.

ABOUT THE INVESTMENT ADVISER ___ Gateway Investment Advisers, L.P. provides investment advisory services
to each fund.

HOW FUND SHARES ARE PRICED ___ Fund share prices are available 24 hours a day by calling (800) 354-6339.

TAXES ___ Tax information will be reported to you on Form 1099.

INVESTMENT PRACTICES ___ An explanation of the investment practices, risk factors and strategies
employed by each fund.

INVESTMENT RESTRICTIONS ___ Each fund has adopted certain investment restrictions.

GENERAL INFORMATION/THE GATEWAY TRUST ___ Additional information on The Gateway Trust and its Trustees.
</TABLE>

<PAGE> 3

FEES AND EEXPENSES

THE GATEWAY FAMILY OF MUTUAL FUNDS IS 100% NO-LOAD. YOU DO NOT PAY ANY
SALES CHARGES WHEN YOU INVEST IN A GATEWAY FUND.

SHAREHOLDER TRANSACTION EXPENSES

The Gateway family of funds does not charge a fee for purchases,
exchanges, or redemptions. All Gateway funds are 100% no-load.

Index Mid Cap Small Cap
Shareholder Transaction Expenses Plus Fund Index Fund Index Fund
-------------------------------- --------- ---------- ----------
<S> <C> <C> <C>
Maximum Sales Load on Purchase None None None
Maximum Sales Load on
Reinvested Dividends None None None
Deferred Sales Load None None None
Redemption Fee None None None
Exchange Fee None None None
</TABLE>

The custodian for the Gateway funds charges $10 for each wire transfer.

FUND OPERATING EXPENSES

Annual fund operating expenses are paid from a fund's assets. Each fund
pays an advisory fee to Gateway Investment Advisers, L.P. (the "Adviser"). Each
fund also pays other expenses for services such as maintaining shareholder
records and furnishing shareholder statements and fund reports. A fund's
expenses are factored into its share price each day and are not charged directly
to shareholder accounts. The numbers in the following table are calculated as
percentages of average net assets.

Index Mid Cap Small Cap
Annual Fund Operating Expenses Plus Fund Index Fund Index Fund
------------------------------ --------- ---------- ----------
<S> <C> <C> <C>
Advisory Fees (after waiver) 0.71% 0.00% 0.00%
12b-1 Fees 0.00 0.00 0.00
Other Expenses (after reimbursements) 0.43 2.00 1.50
---- ---- ----
Total Fund Operating Expenses (after 1.14% 2.00% 1.50%
waiver and reimbursements) ==== ==== ====
(The Fund's Expense Ratio)
</TABLE>

EXAMPLE

Assume that each fund's annual return is 5% and its operating expenses
are exactly as previously described in the Fund Operating Expenses table. For
every $1,000 you invested, the table below shows the amount of expenses you
would incur if you sold your shares after the number of years indicated. THIS
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.

Index Plus Mid Cap Small Cap
Fund Index Fund Index Fund
---- ---------- ----------
<S> <C> <C> <C>
1 year $12 $20 $15
3 years 37 63 47
5 years 64 108 82
10 years 140 233 179
</TABLE>

The purpose of these tables is to assist you in understanding the direct
and indirect costs and expenses you will bear as a fund shareholder.

WAIVER OF 1996 ADVISORY FEE AND EXPENSE REIMBURSEMENTS FOR MID CAP INDEX FUND.
The investment advisory contract requires the Adviser to waive some or all of
its advisory fees as necessary to limit the Mid Cap Index Fund's expense ratio
to an annual rate of 1.50% of its average daily net assets. Any contractual
waiver will not exceed the aggregate advisory fee payable by the Fund for the
applicable year. In addition, the Adviser has voluntarily agreed to reimburse
expenses to the extent required (after giving full effect to the fee waiver) to
maintain the Fund's expense ratio at 2.00%. The Fund's actual expense ratio for
1996 was 2.00%. Absent the waiver and voluntary reimbursements, the advisory
fees and operating expenses of the Fund in 1996 would have been 0.90% and 3.19%,
respectively.

<PAGE> 4

WAIVER OF 1996 ADVISORY FEE FOR SMALL CAP INDEX FUND. The investment advisory
contract requires the Adviser to waive some or all of its advisory fees as
necessary to limit the Small Cap Index Fund's expense ratio to an annual rate of
2.00% of its average daily net assets. Any contractual or voluntary waiver will
not exceed the aggregate advisory fee payable by the Fund for the applicable
year. In addition, the Adviser has voluntarily agreed to waive any remaining
advisory fees to the extent the Fund's expense ratio exceeds 1.50%. The Adviser
waived all of its advisory fees in 1996. The actual advisory fees and total
annual fund operating expenses of the Fund in 1996 were 0.00% and 1.50%,
respectively. Absent the waiver, the advisory fees and total annual fund
operating expenses of the Fund in 1996 would have been 0.90% and 2.40%,
respectively.

<PAGE> 5

FINANCIAL HIGHLIGHTS

The following condensed financial information for the seven years ended
December 31, 1996, has been audited by Arthur Andersen LLP, independent public
accountants. Other independent public accountants audited the condensed
financial information for the years ended December 31, 1987 through December 31,
1989. The audit report on the 1996 financial statements should be read in
conjunction with this condensed financial information. The audit report on the
1996 financial statements is incorporated by reference in the SAI and is
available from the Trust. The presentation is for a share outstanding throughout
each period.

GATEWAY INDEX PLUS FUND Year Ended December 31,
------------------------------------------------------------------------
1996 1995(3) 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 0.21 0.24 0.26 0.26 0.27 0.31
Net gains (losses) on securities 1.56 1.46 0.61 0.88 0.51 2.10
---- ------- ------- ------- ------- -------
Total from investment operations 1.77 1.70 0.87 1.14 0.78 2.41
---- ------- ------- ------- ------- -------

Dividends from net investment income (0.20) (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
Returns of capital 0.00 0.00 0.00 0.00 0.00 0.00
---- ------- ------- ------- ------- -------
Total distributions (0.20) (0.27) (1.24) (0.80) (0.51) (0.81)
------ -------- -------- -------- -------- --------

Net asset value, end of period $18.48 $16.91 $15.48 $15.85 $15.51 $15.24
====== ======= ====== ====== ====== ======

TOTAL RETURN 10.53% 11.04% 5.57% 7.40% 5.15% 17.80%

Net assets, end of period (millions) $194.36 $176.22 $164.65 $207.18 $212.95 $81.37
Ratio of expenses to average net assets (1) 1.14% 1.19% 1.21% 1.11% 1.11% 1.22%
Ratio of net investment income to average net
assets (1) 1.18% 1.51% 1.54% 1.58% 1.96% 2.17%
Portfolio turnover rate 17% 5% 4% 17% 15% 31%
Average commission per share $0.0335 -- (4) -- (4) -- (4) -- (4) -- (4)
- ---------------------------------------------------------------------------------------------------------------------------

GATEWAY INDEX PLUS FUND (continued) Year Ended December 31,
-------------------------------------------------

1990 1989 1988 1987
-------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $15.49 $13.67 $11.60 $14.63
------ ------ ------ ------
Net investment income 0.41 0.33 0.23 0.27
Net gains (losses) on securities 1.15 2.29 2.05 (1.05)
------- ------- ------- --------
Total from investment operations 1.56 2.62 2.28 (0.78)
------- ------- ------- --------

Dividends from net investment income (0.41) (0.37) (0.21) (0.33)
Distributions from capital gains (3.00) (0.35) 0.00 (0.28)
Distributions in excess of realized
capital gains 0.00 0.00 0.00 0.00
Returns of capital 0.00 (0.08) 0.00 (1.64)
------- -------- ------- --------
Total distributions (3.41) (0.80) (0.21) (2.25)
-------- -------- -------- --------

Net asset value, end of period $13.64 $15.49 $13.67 $11.60
====== ====== ====== ======

TOTAL RETURN 10.32% 19.45% 19.76% (5.65%)

Net assets, end of period (millions) $38.08 $31.51 $27.33 $27.35
Ratio of expenses to average net assets (1) 1.34% 1.40% 2.08% 1.48%
Ratio of net investment income to average net
assets (1) 2.59% 2.21% 1.75% 1.83%
Portfolio turnover rate 79% 30% 10% 175%
Average commission per share -- (4) -- (4) -- (4) -- (4)
- ------------------------------------------------------------------------------------------------------

</TABLE>

Additional information about the performance of each Gateway fund is contained
in 1996 Annual Reports to shareholders of the Gateway funds. Annual Reports for
1996 may be obtained without charge by writing THE GATEWAY TRUST, P. O. BOX
5211, CINCINNATI, OH 45201-5211 or by calling (800) 354-6339.

<PAGE> 6

Year Ended Year Ended Year Ended Year Ended From 9/30/92 to
GATEWAY MID CAP INDEX FUND 12/31/96 12/31/95 (3) 12/31/94 12/31/93 12/31/92 (2)
------------------------------------------------------------------------------
<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) (0.02) 0.03 0.08 0.11 0.03
Net gains or losses on securities 1.80 2.43 (0.60) 0.41 0.04
---- ------- -------- ------- -------
Total from investment operations 1.78 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 (0.61) (0.37) (0.01) (0.29) 0.00
------ -------- -------- -------- ------
Total distributions (0.61) (0.43) (0.06) (0.40) (0.03)
------ -------- -------- -------- --------
Net asset value, end of period $12.78 $11.61 $ 9.58 $10.16 $10.04
====== ====== ====== ====== ======

TOTAL RETURN 15.33% 25.68% (5.12%) 5.18% 0.70%(2)

Net assets, end of period (millions) $6.29 $ 5.69 $ 6.59 $10.46 $10.69
Ratio of net expenses to average net assets(1) 2.00% 1.98% 1.50% 1.50% 1.50%
Ratio of net investment income to average net assets(1) (0.25%) 0.05% 0.59% 1.06% 1.39%
Portfolio turnover rate 14% 18% 8% 105% 0%(2)
Average commission per share $0.0355 -- (4) -- (4) -- (4) -- (4)

- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>

GATEWAY SMALL CAP INDEX FUND Year Ended Year Ended Year Ended From 6/16/93 to
12/31/96 12/31/95(3) 12/31/94 12/31/93 (2)
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $11.05 $ 9.63 $10.35 $10.00
------ ------ ------ ------
Net investment income (loss) 0.01 0.03 (0.02) 0.04
Net gains or losses on securities 1.87 2.07 ( 0.60) 0.61
---- ------- --------- -------
Total from investment operations 1.88 2.10 ( 0.62) 0.65
---- ------- --------- -------

Dividends from net investment income (0.01) (0.01) (0.00) (0.04)
Distributions from capital gains (0.86) (0.67) (0.10) (0.26)
------ -------- -------- --------
Total distributions (0.87) (0.68) (0.10) (0.30)
------ -------- -------- --------
Net asset value, end of period $12.06 $11.05 $ 9.63 $10.35
====== ====== ====== ======

TOTAL RETURN 17.04% 21.81% (5.99%) 6.50%(2)

Net assets, end of period (millions) $10.92 $9.42 $ 9.66 $13.00
Ratio of net expenses to average net assets (1) 1.50% 1.68% 2.00% 1.92%
Ratio of net investment income (loss) to average net assets (1) 0.03% 0.09% (0.14%) 0.98%
Portfolio turnover rate 20% 20% 39% 3%(2)
Average commission per share $0.0371 -- (4) -- (4) -- (4)
<FN>
- -----------------------------------------------------------------------------------------------------------------------------------

(1) The ratios of expenses to average net assets would have increased and net
investment income (loss) to average net assets would have decreased
(increased) by the following amounts had the Adviser not voluntarily
reimbursed expenses: 0.13% for the Index Plus Fund in 1988; 0.02% for the
Mid Cap Index Fund in 1995; and 0.08% for the Small Cap Index Fund in 1993.

(2) Operations of the Mid Cap Index Fund and Small Cap Index Fund commenced on
September 30, 1992 and June 16, 1993, respectively. The expense and net
income ratios and portfolio turnover rates in those initial years have been
annualized. The total returns in those initial years have not been
annualized.

(3) On December 15, 1995, Gateway Investment Advisers, L.P. became investment
adviser to the funds.

(4) Disclosure of average commission per share was not required prior to the
year ended December 31, 1996.

</TABLE>

6
<PAGE> 7

HOW TO OPEN A GATEWAY ACCOUNT

GATEWAY FUNDS ARE AVAILABLE TO INDIVIDUALS, IRAS, TRUSTS, AND PENSION PLANS.

OPENING A NEW ACCOUNT

You may open an account by mail or by telephone. Generally, the minimum
initial investment is $1,000 (or $500 for an IRA account) in any fund. At its
discretion, the Trust may waive these minimums for investments made by
employer-sponsored qualified retirement plans or through automatic investment
programs. No sales commission is charged by the Gateway funds for purchases or
redemptions of fund shares. Your purchase will be based on the closing share
price of the fund as next determined after your request has been received in
good order. (See "How Fund Shares Are Priced" on page 20.)

After your purchase you will receive a confirmation statement showing the
value of your account. Certificates are not issued for fund shares.

BY MAIL

To open your account by mail, please complete and sign the New Account
Application Form which accompanies this Prospectus. The application has
instructions to assist you. Please indicate the amount of your investment in
each Gateway fund. When you have completed the application, please mail it to:
THE GATEWAY TRUST, SHAREHOLDER SERVICES, P. O. BOX 5211, CINCINNATI, OH
45201-5211.

Please include your check or money order payable to THE GATEWAY TRUST
with your application.

BY TELEPHONE

To open your account by telephone, you must wire your investment to The
Gateway Trust. Please call Gateway shareholder services at (800) 354-6339 for
instructions.

See Page 10 for additional information about wire transfers and telephone
instructions.

OPENING A NEW IRA ACCOUNT/TRANSFERRING AN EXISTING IRA

To open a new IRA in a Gateway fund, please call Gateway shareholder
services at (800) 354-6339 to obtain an IRA Account Application and an IRA
Investment Kit. To transfer an existing IRA from a bank or other mutual fund to
your Gateway IRA, you must complete an IRA Transfer Form which is included in
the IRA Investment Kit, in addition to an IRA Account Application. To transfer
or roll over funds from an employer-sponsored plan such as a 401(k) plan, please
call Gateway shareholder services at (800) 354-6339 for instructions. GATEWAY
IRAS ARE FREE OF ANY ANNUAL CHARGES OR TRANSACTION FEES.

OPENING A TRUST/PENSION PLAN ACCOUNT

To open a trust account in a Gateway fund, please complete the New
Account Application Form. In the registration section, give the full legal name
of the trust. Pension plans may invest in a Gateway fund by completing the New
Account Application Form.

OPENING A UNIFORM GIFT TO MINORS ACT ACCOUNT

To open a Gateway account for a minor (typically used for educational
savings plans), please complete the UGMA/UTMA section of the New Account
Application Form. Be sure to include the minor's social security number.

7
<PAGE> 8

HOW TO PURCHASE ADDITIONAL SHARES

THE MINIMUM AMOUNT FOR AN ADDITIONAL INVESTMENT IS $100.

You may add to your Gateway account at any time by choosing one of the
following purchase options. The minimum amount for an additional investment in
any fund is $100. Your purchase will be based on the closing share price of the
fund as next determined after your request has been received in good order. (See
"How Fund Shares Are Priced" on page 20.)

After each purchase you will receive a confirmation statement showing the
value of your account. Certificates are not issued for fund shares.

BY MAIL

The most common way of purchasing additional shares in a Gateway fund is
by mail. Please send your check or money order and an Additional Investment Form
in a prepaid envelope. Additional Investment Forms and prepaid envelopes are
included with each confirmation statement, quarterly report, and periodic
newsletter sent to you. Please make all checks or money orders payable to THE
GATEWAY TRUST and mail to: THE GATEWAY TRUST, SHAREHOLDER SERVICES, P. O. BOX
5211, CINCINNATI, OH 45201-5211.

BY TELEPHONE

To avoid any mail delay, you may call Gateway shareholder services at
(800) 354-6339 to arrange a purchase by wire. See Page 10 for additional
information about wire transfers and telephone instructions.

BY AUTOMATIC INVESTMENT PROGRAM

Gateway's Automatic Investment Program is a way to make regularly
scheduled purchases in your existing Gateway account. When you use the program,
funds are electronically transferred from your bank account to Gateway and
additional shares are then purchased for your account. This service is available
on a monthly or quarterly basis with a minimum of $100 per transfer. GATEWAY
DOES NOT CHARGE ANY FEE FOR USE OF THE AUTOMATIC INVESTMENT PROGRAM. Please call
Gateway shareholder services at (800) 354-6339 to make arrangements to use this
program.

BY EXCHANGE FROM ANOTHER GATEWAY FUND

To purchase shares by exchanging from another Gateway fund, please call
Gateway shareholder services at (800) 354-6339 for instructions. The exchange
will be based on the closing share prices for the funds involved in the exchange
as next determined after your request has been received in good order. (See "How
Fund Shares Are Priced" on page 20.)

The Trust does not charge any fee for exchanges between Gateway funds.
Generally, an exchange between funds is a taxable event. State securities laws
may restrict your ability to make exchanges. The Trust reserves the right to
temporarily or permanently terminate the exchange privilege for any shareholder
who makes an excessive number of exchanges between funds. You will receive
advance written notice that the Trust intends to limit your use of the exchange
privilege. The Trust also reserves the right to terminate or modify the exchange
privilege or to refuse an exchange if the exchange would adversely affect any
Gateway fund involved in the exchange.

8
<PAGE> 9

HOW TO REDEEM SHARES

INVESTORS MAY REDEEM SHARES BY WRITING OR CALLING GATEWAY.

You may redeem shares from your Gateway account at any time by choosing
one of the following options. Your redemption will be based on the closing share
price of the fund as next determined after your request is received in good
order. (See "How Fund Shares Are Priced" on page 20.)

The proceeds from your redemption will be mailed or wired, depending on
the method of redemption and your instructions. Normally the proceeds will be
sent on the following business day. Payments to shareholders who have purchased
shares by check will not be made until the purchase check has cleared, which
could take up to fifteen days.

BY MAIL

Redemption requests made in writing should be sent to: THE GATEWAY TRUST,
SHAREHOLDER SERVICES, P. O. BOX 5211, CINCINNATI, OH 45201-5211.

Each redemption request should include a letter of instruction specifying
the fund and the number of fund shares or dollar amount to be redeemed and
should be signed by all owners of the shares exactly as their names appear on
the account. In certain cases, other supporting legal documents may be required.
A check for the redemption proceeds will be mailed to the address shown on your
account.

A signature guarantee is not usually required. However, a signature
guarantee is required under certain circumstances, including redemptions
involving payment to persons other than the record owner(s) of the shares. A
signature guarantee will be accepted from banks, brokers, dealers, municipal
securities dealers or brokers, government securities dealers or brokers, credit
unions (if authorized by state law), national securities exchanges, registered
securities associations, clearing agencies, and savings associations. Notary
publics cannot guarantee your signature.

BY TELEPHONE

Unless you have declined telephone exchange and/or redemption privileges,
you may redeem your shares by calling Gateway shareholder services at (800)
354-6339. If you redeem your shares by telephone, the redemption proceeds will
be paid by check to the owner(s) of the shares shown on Gateway's records and
mailed to the address shown on Gateway's records for your account. Redemption
proceeds can be sent by wire if you completed the wire transfer instructions in
your original New Account Application Form or you have sent separate wire
transfer instructions to Gateway. Separate wire transfer instructions must be
signed by all owners of the shares exactly as their names appear on the account,
and the signatures must be guaranteed. The telephone redemption procedure is not
available for IRAs.

SYSTEMATIC WITHDRAWAL PROGRAM

If the value of your account is at least $5,000, you can arrange for
systematic quarterly or monthly withdrawals in the amount of $100 or more.
Please call Gateway shareholder services at (800) 354-6339 to make arrangements
to use this program.

See Page 10 for additional information about redemptions and telephone
instructions.

9
<PAGE> 10

ADDITIONAL SHAREHOLDER INFORMATION

FEES CHARGED BY YOUR BROKER OR BANK

If you buy or sell shares of a Gateway fund through a broker, the broker
may charge you additional fees and expenses. If you buy shares through a wire
transfer, The Gateway Trust will not charge you for the wire. Your financial
institution may charge you for this service or for transfers from your bank
account to a Gateway fund through the Automatic Investment Program. If you
redeem shares through a wire transfer, the Trust's custodian will assess a wire
charge of $10. Your financial institution may also charge you for receiving a
wire transfer of redemption proceeds.

ADDITIONAL IRA INFORMATION

For information about redeeming shares from an IRA, please call Gateway
shareholder services at (800) 354-6339. More detailed information about
transfers to and distributions from an IRA is set forth in the SAI.

TELEPHONE TRANSACTIONS

The Gateway Trust will not be liable for any damages resulting from
following instructions received by telephone that it reasonably believes to be
genuine. The Trust will employ reasonable procedures to confirm that telephone
instructions are genuine. All shareholders of the Gateway funds have telephone
redemption and exchange privileges unless the shareholder has specifically
declined these privileges. If you do not wish to have telephone privileges for
your account, you must mark the appropriate section on the New Account
Application Form or notify the Trust in writing. To protect shareholders who
have telephone privileges, the Trust follows certain procedures, including
requiring a form of personal identification before acting upon telephone
instructions, making redemption checks requested by telephone payable only to
the owner(s) of the account shown on the Trust's records, mailing such
redemption checks only to the account address shown on the Trust's records,
directing wire redemptions requested by telephone only to the bank account shown
on the Trust's records, providing written confirmation of all transactions, and
normally tape recording any instructions received by telephone.

REDEMPTIONS BY THE TRUST

The Gateway Trust reserves the right to reject any investment at any
time. The Trust also reserves the right to redeem your account(s) under certain
circumstances. You will receive written notice at least 60 days prior to the
redemption of your account(s) by the Trust. The Trust may redeem your account(s)
when the aggregate value of your account(s) falls below $800 (other than as a
result of market action) unless you purchase additional shares to increase the
value of your account(s) to at least $1,000 before the end of the 60-day period.
The Trust will redeem your account(s) if you do not provide a valid U. S. social
security number or taxpayer identification number or other requested documents
before the end of the 60-day period. The Trustees of The Gateway Trust can
terminate any series of the Trust upon written notification to the shareholders
of the applicable series.

ADDITIONAL REDEMPTION INFORMATION

Redemption proceeds will be sent to you no later than five business days
after your request is received in good order. The right of redemption may be
suspended in certain circumstances, such as the closing of the New York Stock
Exchange for a period other than weekends or normal holidays.

10
<PAGE> 11

GATEWAY PERFORMANCE

GATEWAY HAS BECOME AN INDUSTRY LEADER IN PROVIDING PROSPECTIVE INVESTORS AND
EXISTING SHAREHOLDERS WITH COMPLETE INFORMATION ON ITS NO-LOAD FUNDS.

It is important for you to understand completely the risks as well as the
potential rewards of each Gateway fund before investing. The tables and graphs
appearing in this section of the Prospectus are designed to help you understand
these risks and rewards and should be studied carefully. A brief description of
each table and graph, as well as its significance, is included on the following
pages. For a more complete explanation see the SAI.

YEAR-BY-YEAR TOTAL RETURNS SINCE INCEPTION

Index Mid Cap Index Small Cap S&P 500 Lehman Gov't/Corp
Plus Fund Fund Index Fund Stock Index Bond Index
--------- ---- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1996 10.53% 15.33% 17.04% 22.96% 2.91%
1995 11.04 25.68 21.81 37.58 19.24
1994 5.57 (5.12) (5.99) 1.32 (3.52)
1993 7.40 5.18 6.50** 10.08 11.02
1992 5.15 0.70* 7.62 7.58
1991 17.80 30.47 16.13
1990 10.32 (3.11) 8.28
1989 19.45 31.69 14.23
1988 19.76 16.52 7.58
1987 (5.65) 5.05 2.29
1986 12.69 18.51 15.62
1985 15.89 31.57 21.30
1984 4.04 6.10 15.02
1983 14.80 22.47 8.00
1982 9.46 21.40 31.09
1981 4.59 (5.05) 7.26
1980 16.50 32.33 3.06
1979 15.37 18.20 2.30
1978 5.90 6.40 1.19

<FN>
*September 30, 1992 to December 31,1992
**June 16, 1993 to December 31, 1993
</TABLE>

COMPARATIVE PERFORMANCE INFORMATION

Each Gateway fund may compare its performance to various indexes, such as
the S&P 500 Index. Each Gateway fund may also compare its performance to that of
other mutual funds or categories of mutual funds as reported by independent
services, such as Morningstar, Inc. and Value Line Mutual Fund Survey, or by
other financial publications.

11
<PAGE> 12

AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
---------------------------------------------------- --------------------------------------------

1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------ -------------- ----------- ----------- -------- ---------- ---------- ----------

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gateway Index Plus 10.53% 9.02% 7.91% 9.88% 10.53% 29.56% 46.32% 156.62%
Gateway Mid Cap Index 15.33 11.21 N/A N/A 15.33 37.53 N/A N/A
Gateway Small Cap Index 17.04 10.25 N/A N/A 17.04 34.03 N/A N/A

S&P 100 Index 25.54 21.75 16.26 15.35 25.54 80.46 112.41 317.06
S&P MidCap 400 Index 19.20 14.59 13.93 15.94 19.20 50.49 91.96 338.69
Wilshire Small Cap Index 19.97 13.75 N/A N/A 19.97 47.17 N/A N/A
S&P 500 Index 22.96 19.67 15.22 15.26 22.96 71.40 103.05 313.76
Lehman Gov't/Corp Bond Index 2.91 5.79 7.18 8.38 2.91 18.39 41.44 123.71
Consumer Price Index 3.59 2.93 2.89 3.70 3.59 9.06 15.30 43.86

<FN>
* For periods ended December 31, 1996
</TABLE>

12
<PAGE> 13

EXPLANATION OF INVESTMENT TERMS

TOTAL RETURN is the change in the value of an investment in a fund over a
given period, assuming reinvestment of distributions.

A CUMULATIVE TOTAL RETURN reflects actual performance over a stated
period of time.

An AVERAGE ANNUAL TOTAL RETURN is a rate of return that, if achieved
consistently throughout a given period, would produce a cumulative total return
equal to that actually achieved by the fund over the same period. Average
annual total returns smooth out variations in performance; they are not the
same as actual year-by-year results.

STANDARD DEVIATION is a statistical measure of volatility. It measures the
expected change in the value of a fund or a market index such as the S&P 500
Index. A fund with an expected return of 10% and a standard deviation of 15%
would be expected to show returns of -5% to +25% in two out of every three
years. Volatility is often used as a measure of risk. A lower standard
deviation implies lower volatility.

BETA is a measure of a fund's volatility relative to an appropriate index. It
measures how much the value of a fund fluctuates compared to the index.
As an example, the S&P 500 Index has a beta of 1.0. Any stock mutual fund with
a beta greater than 1.0 is more volatile than the stock market, and any fund
with a beta lower than 1.0 is less volatile than the stock market as
represented by the S&P 500 Index.

RISK of an investment is very important for investors to understand. The
Trustees of The Gateway Trust are concerned that some investors may purchase
mutual funds without an appreciation for the risk they have assumed. The tables
and charts presented in this document measure risk in four ways: beta, standard
deviation, number of negative periods experienced by the fund, and the worst
total return in one of those periods. Each measure of risk is more fully
described in the SAI.

The S&P 100 INDEX is an unmanaged index of 100 common stocks with a
market capitalization range of $991 million to $163 billion. The performance of
this index assumes reinvestment of all dividends paid on the stocks in the
index.

The S&P 500 Index is a widely recognized measure of performance for the
stock market. The S&P 500 figures represent the prices of an unmanaged index of
500 common stocks and assume reinvestment of all dividends paid on the stocks in
the index.

The S&P MIDCAP 400 INDEX is an unmanaged index of 400 common stocks with
a market capitalization range of $196 million to $6.5 billion. The performance
of this index assumes reinvestment of all dividends paid on the stocks in the
index.

The WILSHIRE SMALL CAP INDEX is an unmanaged index of 250 common stocks with a
market capitalization range of $54 million to $2.5 billion. The performance of
this index assumes reinvestment of all dividends paid on the stocks in the
index.

The LEHMAN GOVERNMENT/CORPORATE BOND INDEX is a widely recognized measure of
performance for the bond market representing an unmanaged index of selected
government and corporate bonds. The Lehman Index figures assume reinvestment of
all distributions paid on the bonds in the index. As of December 31, 1996, the
average maturity of this index was 9.5 years.

The CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U. S. government.

U. S. TREASURY BILLS are negotiable debt obligations of the U. S.
government. Since they are secured by the full faith and credit of the
government, they are regarded as risk-free investments. Treasury bills are
short-term securities with maturities of one year or less.

13
<PAGE> 14

INDEX PLUS FUND INFORMATION

GROWTH OF A $10,000 INVESTMENT
- ------------------------------

(Insert Chart Here)

Index Plus Fund Plot Points - Growth of $10,000 Chart

Index Plus S&P 500 Lehman
Fund Gov't/Corp
Bond Index

14
<PAGE> 15

<TABLE>

15
<PAGE> 16

<TABLE>

16
<PAGE> 17

This chart shows the growth of a $10,000 investment made ten years ago.

==============================================

Index Plus Fund
---------------
Average Annual Total Returns
----------------------------
As Of December 31, 1996
-----------------------

==============================================
<S> <C>
One Year 10.53%
- -------- ------
Five Years 7.91%
- ---------- -----
Ten Years 9.88%
- --------- -----
==============================================
</TABLE>

Performance data shown throughout this document represents past performance and
assumes 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.

OVERVIEW
- --------

The Index Plus Fund is designed for conservative investors whose investment
objective is to maximize total rate of return over the long term.

========================================================

Top Ten Holdings
As Of December 31, 1996
(as a percentage of portfolio)

========================================================
<S> <C>
General Electric Company 6.61%
Coca-Cola Co. 5.30%
Exxon Corp. 4.92%
Intel Corporation 4.35%
Merck & Company 3.90%
International Business Machines Corp. 3.23%
AT&T 2.83%
Johnson & Johnson 2.68%
Bristol-Myers Squibb Company 2.20%
DuPont E.I. de Nemours 2.14%
========================================================
</TABLE>

17
<PAGE> 18

RISK/REWARD CHARTS
- ------------------
<TABLE>
<CAPTION>

(Insert Risk/Reward Charts Here)
Index Plus Fund Plot Points - Risk/Reward Charts

5 Years
12/31/91 - 12/31/96

<S> <C> <C>
Risk Return
U.S. Treasury bills 0.31 4.22%
(30 day)
Index Plus 3.59 7.91%
S&P 500 8.60 15.22%

10 Years
12/31/86 - 12/31/96

Risk Return

U.S. Treasury bills 0.49 5.44%
(30 day)
Index Plus 7.63 9.88%
S&P 500 14.35 15.26%
</TABLE>

These charts show that, in general, more risk must be taken to earn higher total
returns. Any investment can be shown on the graph by plotting its risk (standard
deviation) and its reward (average annual total return). The charts show three
points. One point shows 30-day U. S. Treasury bills, one point shows the S&P 500
Index, and the third point shows the Index Plus Fund. The line connecting
Treasury bills and the S&P 500 Index shows all the possible outcomes if an
investment had been allocated between these two choices in varying proportions.
When the Index Plus Fund point appears above the line, it shows that the Fund
earned a higher-than-expected return during the period covered by the chart,
considering the amount of risk it took to earn that return. When the point
appears below the line, it shows the reverse. The next ten years may be quite
different in terms of risk and reward for all three investments shown on the
charts.

18
<PAGE> 19

MID CAP INDEX FUND INFORMATION

GROWTH OF A $10,000 INVESTMENT
- ------------------------------

(Insert Chart Here)

Mid Cap Index Fund Plot Points - Growth of $10,000 Chart
<TABLE>
<CAPTION>

Mid Cap S&P MidCap 400
Index Fund Index

19
<PAGE> 20

<TABLE>

<S> <C> <C>
Feb-96 $13,206.48 $16,866.21
Mar-96 $13,358.75 $17,068.27
Apr-96 $13,663.33 $17,589.53
May-96 $13,837.40 $17,827.34
Jun-96 $13,565.49 $17,559.76
Jul-96 $12,749.67 $16,371.84
Aug-96 $13,434.96 $17,316.00
Sep-96 $13,946.29 $18,070.98
Oct-96 $13,989.81 $18,123.57
Nov-96 $14,620.75 $19,144.47
Dec-96 $14,566.36 $19,165.72

</TABLE>

This chart shows the growth of a $10,000 investment at the Fund's inception.

============================================

Mid Cap Index Fund
Average Annual Total Returns
As Of December 31, 1996

============================================
<S> <C>
One Year 15.33%
Five Years N/A
Life of Fund 9.25%

============================================
</TABLE>

OVERVIEW
- --------

The Mid Cap Index Fund is designed for an aggressive investor who seeks
long-term growth of capital and a secondary objective of conserving principal.

========================================================

Top Ten Holdings
As Of December 31, 1996
(as a percentage of portfolio)

========================================================
<S> <C>
U. S. Robotics 0.92%
Parametric Technology Corporation 0.90%
Thermo Electron Corporation 0.87%
Coca-Cola Enterprises Inc. 0.85%
HEALTHSOUTH Rehabilitation Corp. 0.84%
Cardinal Health, Inc. 0.83%
AFLAC Incorporated 0.82%
Charles Schwab Corporation 0.81%
Franklin Resources, Inc. 0.76%
State Street Boston Corporation 0.72%

========================================================
</TABLE>

20
<PAGE> 21

SMALL CAP INDEX FUND INFORMATION

GROWTH OF A $10,000 INVESTMENT
- ------------------------------

(Insert Chart Here)

Small Cap Plot Points - Growth of $10,000 Chart

Small Cap Wilshire Small
Index Fund Cap Index

21
<PAGE> 22

<TABLE>

This chart shows the growth of a $10,000 investment at the Fund's inception.

============================================

Small Cap Index Fund
Average Annual Total Returns
As Of December 31, 1996

============================================
<S> <C>
One Year 17.04%
Five Years N/A
Life of Fund 10.55%
============================================
</TABLE>

OVERVIEW
- --------

The Small Cap Index Fund is designed for an aggressive investor who seeks
long-term growth of capital.

========================================================

Top Ten Holdings
As Of December 31, 1996
(as a percentage of portfolio)

========================================================
<S> <C>
Western Digital Corp. 1.40%
Rowan Companies, Inc. 1.10%
Jones Apparel Group Inc. 1.09%
Noram Energy Corp. 1.08%
Standard Federal Bank 1.04%
Interstate Bakeries Corporation 1.04%
BJ Services Company 1.03%
Smith International, Inc. 1.02%
First American Corp. of Tennessee 1.00%
Nabors Industries, Inc. 0.95%
========================================================
</TABLE>

22
<PAGE> 23

PORTFOLIO MANAGER PROFILE

J. PATRICK ROGERS, CFA
- ----------------------
Portfolio Manager from 1997
Co-Portfolio Manager from 1994
MBA Xavier University 1994
BBA University of Notre Dame 1986
Age 33

J. Patrick Rogers, CFA, joined Gateway Investment Advisers, Inc. in
1989 and has been its president since 1995. He is the portfolio manager for the
Index Plus Fund, the Mid Cap Index Fund, and the Small Cap Index Fund, as well
as the portfolio manager for the Cincinnati Fund. In addition, he is the
president of The Gateway Trust.

Mr. Rogers currently serves as a board member of the Cincinnati Center
for Developmental Disorders Foundation and the Greater Cincinnati Mutual Fund
Association.

He was awarded the Martin B. Friedman Award at Xavier University which is
given annually to the most outstanding MBA student. Mr. Rogers is a frequent
speaker at various individual investor groups, including AAII, and is active in
many industry associations, including the 100% No-Load Mutual Fund Council.

He and his wife, Elizabeth, have two children.

23
<PAGE> 24

DIVIDENDS AND DISTRIBUTIONS

GATEWAY INVESTORS MAY REINVEST THEIR DIVIDENDS AND DISTRIBUTIONS AT NO CHARGE.

Shareholders of each Gateway fund may elect to receive distributions
either in cash or in additional shares of a fund. To receive your distributions
in cash, please mark the appropriate box on the New Account Application Form.
Once your account is opened, you may change the way your distributions are
handled by writing or calling Gateway.

GATEWAY INDEX PLUS FUND

The Index Plus Fund normally declares dividends at the end of March,
June, September, and December. The amount of the quarterly dividend is based on
interest earned plus common stock dividends received by the Fund, minus
expenses.

If the Fund has net capital gains from stock or option transactions, it
normally declares a capital gain distribution at the end of December. The
capital gain distribution is calculated in accordance with tax regulations and
has varied substantially from year to year.

GATEWAY MID CAP INDEX FUND AND SMALL CAP INDEX FUND

The Mid Cap Index Fund and the Small Cap Index Fund each declares
dividends and net capital gains, if any, at the end of December.

FUND PRICING WHEN DIVIDENDS ARE DECLARED

The price of a Gateway fund is affected by its declaration of dividends
and capital gain distributions. The price of a fund, as adjusted for market
activity, generally drops by the amount of the declared dividend and capital
gain distribution. As an example, assume that on December 31 the Gateway Index
Plus Fund declares a dividend in the amount of $0.50 per share. If the Fund's
price per share was $16.50 on December 30, and there was no change in the value
of the Fund's investments due to market activity, the Fund's price on December
31 would be $16.00. The decline of $0.50 per share would be the result of the
declaration of the $0.50 dividend.

TAX CONSEQUENCES OF BUYING A DIVIDEND

If you buy fund shares just before the fund declares a dividend, you
will pay the full price for the shares and then receive a portion of the price
back as a taxable distribution. In the example above, if you bought shares of
the Gateway Index Plus Fund on December 30, you would pay $16.50 per share. On
December 31, the Fund would pay you $0.50 per share as a dividend and your
shares would be worth $16.00 per share. The dividend paid to you would generally
be included in your gross income for tax purposes, whether or not you reinvested
the dividend. For this reason, you should carefully consider the tax
consequences of buying shares of a Gateway fund in late December.

24
<PAGE> 25

ABOUT THE INVESTMENT ADVISER

INVESTMENT ADVISER

Gateway Investment Advisers, L.P. (the "Adviser"), a Delaware limited
partnership, has acted as the investment adviser for the funds since December
15, 1995. Gateway Investment Advisers, Inc. ("GIA") provided investment advisory
services to the funds from their formation until December 15, 1995. The Adviser
is the successor in interest to the assets, business, and personnel of GIA. The
Adviser is a limited partnership in which GIA is the general partner with a 76%
partnership interest. The sole limited partner of the Adviser is Alex. Brown
Investments Incorporated, an affiliate of Alex. Brown & Sons Incorporated, a
nationally known investment banking firm and registered broker/dealer located in
Baltimore, Maryland. The principal and controlling shareholders of GIA are
Walter G. Sall and J. Patrick Rogers. As of December 31, 1995, the Adviser had
approximately $385 million in assets under its management, including
approximately $221 million in assets invested in the funds including the
Cincinnati Fund. The Adviser has entered into an Advisory Referral Agreement
with Alex. Brown & Sons Incorporated under which the Adviser will pay a referral
fee for those shares of the funds that have been directed to the Adviser by
Alex. Brown & Sons Incorporated.

The Small Cap Index Fund's portfolio holds stock of Alex. Brown & Sons
Incorporated, an affiliate of Alex. Brown Investments Incorporated, because this
security is a part of the Wilshire Small Cap Index. This stock is owned in
proportion to its representation in the Index.

ADVISORY SERVICES

The Adviser provides each fund with investment research and advice. The
Adviser also places with brokers each fund's buy and sell orders for portfolio
securities. When the Adviser places these orders, it uses its best efforts to
obtain the most favorable price and execution available for the fund, except to
the extent that the fund may be permitted to pay higher commissions for
brokerage and research services pursuant to Section 28(e) of the Securities
Exchange Act of 1934. Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., the Adviser may consider sales of fund
shares as a factor in the selection of brokers to execute fund portfolio
transactions. Because the Board of Trustees believes that in certain
circumstances it is advantageous to the Trust to execute portfolio transactions
through Alex. Brown & Sons Incorporated, each fund may pay brokerage commissions
to that broker.

ADVISORY FEES

Each fund pays the Adviser an advisory fee calculated at an annual rate
of 0.90% of the first $50 million of the average daily net asset value of the
fund, 0.70% of the average daily net asset value of the fund in excess of $50
million but less than $100 million, and 0.60% on the average daily net asset
value of the fund in excess of $100 million. The advisory contracts require the
Adviser to waive fees as necessary to limit the Mid Cap Index Fund's expense
ratio to 1.50% of its average daily net assets and the Small Cap Index Fund's
expense ratio to 2.00% of its average daily net assets. The Adviser waived
advisory fees in accordance with the advisory contracts of $54,410 for the Mid
Cap Index Fund and $91,823 for the Small Cap Index Fund in 1996. Any contractual
waiver will not exceed the aggregate advisory fee payable by any fund for the
applicable year.

FUND EXPENSES

Each fund pays all of its ordinary business expenses, other than
advertising and marketing expenses which are paid by the Adviser. Ordinary
business expenses include the advisory fees, custodial fees, brokerage
commissions, fees paid to the Adviser for providing shareholder services,
expenses incurred in the registration of the fund shares with federal and state
securities agencies, and each fund's proportionate share of the collective
general expenses of the Trust. Expenses applicable to more than one fund are
either allocated on the basis of the number of shareholders or the net assets in
each fund, including the Cincinnati Fund. These collective expenses include, but
are not limited to, certain printing and mailing costs, professional fees, and
insurance costs.

The Adviser provides shareholder, transfer, dividend disbursing,
financial, and administrative services to each fund. Each fund reimburses the
Adviser for printing, mailing, and compliance expenses associated with providing
its services. In addition, each fund reimburses the Adviser for other processing
expenses at a minimum rate of $2,500 per month, up to a maximum annual rate of
0.20% of each fund's average net assets. Each fund also pays the Adviser a
monthly fee of $4,000 per month for the financial and administrative services it
provides.

25
<PAGE> 26

HOW FUND SHARES ARE PRICED

The net asset value (closing share price) of a fund ordinarily is
determined as of the close of the New York Stock Exchange (the "NYSE"), normally
4:00 P.M. Eastern Time, on each day during which the NYSE is open for trading.
Under unusual circumstances, the net asset value may be determined at other
times as authorized by the Board of Trustees. Net asset value is determined by
deducting the liabilities of a fund from the market or fair value of its assets.

The funds normally value stocks and options at the average of the closing
bid and asked quotations. Under normal circumstances, closing option quotations
are considered to be reflective of the option contract values as of the stock
market close and will be used to value the option contracts. Securities for
which market quotations are not readily available, securities in which trading
has been suspended during the day, and all other assets are valued at fair
value. Furthermore, if the Adviser determines that closing options quotations do
not reflect option contract values as of the close of the NYSE, options are
valued at fair value. Fair value is determined in good faith under procedures
adopted by the Board of Trustees.

26
<PAGE> 27

TAXES

DIVIDENDS AND DISTRIBUTIONS

Each Gateway fund intends to distribute to its shareholders substantially
all of its net investment income and net capital gains, as determined in
accordance with appropriate tax regulations.

TAXES ON DIVIDENDS AND DISTRIBUTIONS

Each January you will receive a Form 1099-DIV from Gateway. It will show
the amount and federal income tax treatment of all distributions paid to you
during the year. Distributions of any net investment income and net realized
short-term capital gains are taxable to you as ordinary income, whether or not
you reinvest. Distributions of net long-term capital gains are taxable as
long-term capital gains, whether or not you reinvest and regardless of how long
you held your fund shares.

TAXES ON REDEMPTIONS AND EXCHANGES

Redemptions, including exchanges between Gateway funds, will be reported
to you on Form 1099-B.

TAXES ON IRAS

Contributions, investments, and distributions with respect to IRAs are
subject to specific IRS rules. The IRA Investment Kit contains additional
information about these rules.

ADDITIONAL INFORMATION

The tax discussion set forth above and in the SAI is included for general
information only. You must determine the applicability of federal, state, and
local taxes to dividends and distributions received on your shares of the fund
and to proceeds received from redemptions or exchanges of fund shares.
Prospective investors should consult their own tax advisers concerning the tax
consequences of an investment in a Gateway fund.

27
<PAGE> 28

INVESTMENT PRACTICES

GATEWAY INDEX PLUS FUND

The investment objective of the Index Plus Fund is to achieve a high
total return at a reduced level of risk. The Fund is designed for conservative
investors who want to maximize total rate of return over the long term.

INVESTMENT PRACTICES: The Fund attempts to achieve its investment
objective primarily by investing in the 100 stocks included in the S&P 100 Stock
Index (the "100 Index") and by selling call options on the 100 Index. The
proportion of the Fund's assets invested in each stock held in the Fund's
portfolio is substantially similar to the proportion of the 100 Index
represented by the stock. For example, if a stock represents 2% of the value of
the 100 Index, the Fund invests approximately 2% of its assets in the stock. The
Adviser seeks to maintain a correlation of at least 99% between the composition
of the 100 Index and the Fund's portfolio. The Adviser monitors the composition
of the 100 Index on a daily basis and makes adjustments to the Fund's portfolio,
as needed.

When the Fund sells call options on the 100 Index, it receives cash from
the purchasers of the options. By selling options, the Fund attempts to earn a
greater total return over the long term than it would have earned by investing
only in the stocks in the 100 Index. Selling index call options reduces the risk
of owning stocks, but limits the opportunity to profit from an increase in the
market value of stocks. The Fund occasionally buys index put options in an
attempt to protect the Fund from a significant market decline in a short period
of time. The value of a put option generally increases as stock prices decrease.

The Fund is not affiliated with or sponsored by Standard and Poor's.

GATEWAY MID CAP INDEX FUND

The Mid Cap Index Fund's primary investment objective is long-term growth
of capital with a secondary objective of conserving principal.

INVESTMENT PRACTICES: The Fund attempts to achieve its investment
objectives primarily by investing in the 400 stocks included in the S&P MidCap
400 Index (the "400 Index") and by purchasing put or call options on an index as
market conditions warrant. The Adviser seeks to maintain a correlation of at
least 90% between the composition of the 400 Index and the Fund's portfolio. The
Adviser monitors the composition of the 400 Index on a daily basis and makes
adjustments to the Fund's portfolio, as needed.

At times, the Fund may purchase index put options to reduce the risk of
principal loss and may also buy index call options to increase the potential for
gain.

The 400 Index consists of common stock of 400 companies with a median
market capitalization of $2.3 billion, selected to reflect the stock price
performance of companies in the middle capitalization range. The 400 Index was
developed in 1991 by Standard & Poor's.

The Fund is not affiliated with or sponsored by Standard and Poor's.

GATEWAY SMALL CAP INDEX FUND

The investment objective of the Small Cap Index Fund is to achieve
long-term growth of capital.

INVESTMENT PRACTICES: The Fund attempts to achieve its investment
objective primarily by investing in the 250 stocks included in the Wilshire
Small Cap Index (the "250 Index") and by purchasing put or call options on an
index as market conditions warrant. The Adviser seeks to maintain a correlation
of at least 90% between the composition of the 250 Index and the Fund's
portfolio. The Adviser monitors the composition of the 250 Index on a daily
basis and makes adjustments to the Fund's portfolio, as needed.

At times, the Fund may purchase index put options to reduce the risk of
principal loss and may also buy index call options to increase the potential for
gain.

The 250 Index focuses on capturing the performance profile of the small
capitalization sector of the United States equity market. The 250 Index consists
of common stock of 250 companies with a median market capitalization of $818
million and is designed to accurately reflect the general characteristics of
small capitalization companies. The 250 Index was developed in 1993 by Wilshire
Associates, Inc. in conjunction with the Pacific Stock Exchange.

The Fund is not affiliated with or sponsored by Wilshire Associates, Inc.
or the Pacific Stock Exchange.

SELLING INDEX CALL OPTIONS

The Index Plus Fund regularly sells call options on the 100 Index. If you
are a shareholder in the Fund, it is important for you to understand some basic
information about this investment strategy and the risks involved in option
transactions.

It is easier to understand how index options work if you know some basic
concepts about a call option on an individual stock. A covered call option on an
individual stock is an option sold (written) on an individual stock owned by the
seller. The seller receives cash (a premium) from the purchaser. If the option
is not exercised by the purchaser, the seller realizes a gain equal to the
premium. This gain may be offset by a decline in the market value of the
underlying security. If the option is exercised by the purchaser, the purchaser
pays the seller the exercise price and the seller delivers the underlying
security. The premium, the exercise price, and the market value of the
underlying security determine the gain or loss realized by the seller. The
seller's obligation terminates when the

28
<PAGE> 29

option expires or when the seller enters into a closing purchase transaction.
The cost of entering into a closing transaction reduces any gain realized by the
seller.

A covered call option on a securities index is similar to an option on an
individual stock. However, the seller does not deliver the underlying securities
if the option is exercised. Index option transactions are settled in cash. The
seller pays the purchaser an amount equal to the difference between the closing
price of the index and the exercise price of the option. The premium and the
settlement amount determine the gain or loss realized by the seller.

RISK FACTORS

There are risks inherent in all securities investments. Thus, there can
be no assurance that a fund will be able to achieve its investment objective(s).
Because each fund has long-term investment objectives, none may be an
appropriate investment for persons intending to hold fund shares for less than
six months.

INVESTING IN SMALLER COMPANIES: Investments in companies with smaller
capitalization are generally more speculative than investments in companies with
larger capitalization. However, stocks of smaller companies tend to have more
growth potential. The Mid Cap Index Fund and the Small Cap Index Fund attempt to
provide shareholders with the opportunity to participate in the potential
long-term growth of smaller companies.

SELLING INDEX CALL OPTIONS: Option transactions involve risks not
generally associated with investments in stocks. The sale of index call options
by the Index Plus Fund limits the Fund's opportunity to profit from an increase
in the market value of the underlying index. If the Fund sells exchange-traded
call options to hedge its portfolio, the purchaser usually has the right to
exercise the options at any time prior to the expiration date. The purchaser
normally exercises the options when it is to the purchaser's advantage rather
than the Fund's advantage. In addition, the Fund generally does not receive
notice of the exercise until the next business day. As a result, the Fund's
portfolio is not fully hedged between the time the options are exercised and the
time the Fund sells new call options on the next business day.

PURCHASING INDEX OPTIONS: The purchase of index options involves a risk
of loss of all or part of the cash paid for the options.

CLOSING OPTION TRANSACTIONS: There can be no assurance that a ready
market will exist for any particular option at a specific time. Closing
transactions for over-the-counter options generally must be negotiated with the
other party. These factors could limit the Adviser's ability to close a
particular option transaction at a fair price or in a timely manner or to carry
out a particular investment or hedging strategy. A Gateway fund will enter into
an option transaction only if there appears to be a ready market for such option
or the fund can effectively close its position by entering into an offsetting
position.

HEDGING STRATEGIES: The use of index options to protect or hedge a
Gateway fund's portfolio will not fully protect the fund against declines in the
market value of the securities held in the fund's portfolio. The Adviser may
choose not to use all of the available hedging strategies to protect a fund's
portfolio. The Adviser may also hedge a fund's portfolio at an inappropriate
time or incorrectly anticipate market conditions. In addition, a fund could
experience a loss on both its portfolio securities and the options used to hedge
these securities. Under unusual market conditions, such as an interruption in
trading in an index or certain stocks in the index, the Adviser may be unable to
hedge a fund's portfolio effectively. Restrictions imposed by regulatory
agencies may also adversely affect a fund's hedging strategy.

REGULATORY ISSUES: Due to the option strategies employed by the Adviser
in managing the portfolios of each Gateway fund, it may be more difficult for
the fund to qualify as a regulated investment company. Failure to qualify as a
regulated investment company could subject the fund to certain tax liabilities
and could affect the ability of the fund to meet the regulatory requirements of
certain states. In this case, the Adviser might employ investment techniques
different from those usually employed by the fund in order to reduce the
potential tax liability and to resolve the regulatory issues.

OTHER INVESTMENT STRATEGIES

Each Gateway fund may hold cash for purposes of liquidity or for
temporary defensive purposes. Cash is normally invested in repurchase
agreements. Cash may be also invested in securities of the U. S. government or
any of its agencies, bankers' acceptances, commercial paper, or certificates of
deposit. For temporary defensive purposes, a fund may hold up to 100% of its
assets in such instruments.

REPURCHASE AGREEMENTS: In a repurchase agreement, a fund acquires
securities suitable for investments in accordance with its policies and the
seller (usually a bank) agrees at the time of sale to repurchase such securities
at an agreed-upon date, price, and interest rate. Investments in repurchase
agreements are subject to the risk that the selling bank may default in its
repurchase obligation. Investments in repurchase agreements are also subject to
the risk that the selling bank may become financially insolvent which could
prevent or delay the fund's disposition of the collateral held as security for
these transactions. Each Gateway fund's repurchase agreements are fully
collateralized and the fund takes possession of such collateral, thus reducing
the risk of default. The collateral is subject to continuing market fluctuations
and its value could be more or less than the repurchase price.

ADDITIONAL INFORMATION

For further information concerning the investment practices described
above and certain risks associated with them, see "INVESTMENT OBJECTIVES AND
PRACTICES" in the SAI.

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<PAGE> 30

FUNDAMENTAL POLICIES

The investment objectives and investment restrictions applicable to each
Gateway fund are designated as fundamental policies of the fund. Such
fundamental policies may not be changed without approval of the holders of a
majority of the fund's outstanding shares.

The investment practices and strategies of a fund, as described above,
are not fundamental policies and may be changed without shareholder approval.

30
<PAGE> 31

INVESTMENT RESTRICTIONS

Certain investment restrictions applicable to the Gateway funds are
described below. The complete text of these restrictions is set forth in the SAI
under "INVESTMENT PRACTICES, RISKS AND RESTRICTIONS." Additional investment
restrictions pertaining to the funds are set forth in the SAI under the same
caption.

OPTIONS ON SECURITIES INDEXES: No Gateway fund may purchase or sell put
options, call options, or combinations thereof except in accordance with its
investment objectives and practices and the following restrictions. The Index
Plus Fund may sell covered call options on securities indexes. The Index Plus
Fund may purchase exchange-traded put options on securities indexes, provided
that after any such purchase not more than 5% of the fund's net assets would be
invested in premiums on the purchase of such options. The Mid Cap Index Fund and
the Small Cap Index Fund may purchase exchange-traded call and put options on
securities indexes, provided that after any such purchase not more than 5% of
the fund's net assets would be invested in premiums on the purchase of such
options. Each Gateway fund may enter into closing transactions with respect to
options.

REPURCHASE AGREEMENTS: No Gateway fund may invest more than 5% of its
total assets in repurchase agreements with a maturity longer than seven days.

31
<PAGE> 32

GENERAL INFORMATION ABOUT THE GATEWAY TRUST

THE TRUST AND THE BOARD OF TRUSTEES

The Gateway Trust is an open-end management investment company
established as an Ohio business trust in 1986. From 1977 to 1986, the Trust's
predecessor operated as a Maryland corporation. The Trust has four series: the
Gateway Index Plus Fund, the Gateway Mid Cap Index Fund (formerly the Gateway
Capital Fund), the Gateway Small Cap Index Fund, and the Cincinnati Fund. The
Cincinnati Fund is offered by a separate prospectus.

The Board of Trustees is generally responsible for management of the
business and affairs of the Trust. The Trustees formulate the general policies
of the Trust, approve contracts, and authorize the Trust officers to carry out
the decisions of the Board.

Under the Trust's Second Amended Agreement and Declaration of Trust, no
annual or regular meetings of shareholders are required. As a result, the
Trustees will continue in office until resignation, retirement, death, or
removal. Trustee vacancies normally are filled by vote of the remaining
Trustees. If at any time less than a majority of the Trustees in office has been
elected by the shareholders, the Trustees must call a shareholder meeting for
the purpose of electing Trustees.

SHAREHOLDER MEETINGS AND VOTING

A meeting of shareholders must be called if shareholders holding at least
10% of the Trust's shares (or shareholders holding at least 10% of any fund's
shares as to any matter affecting only such fund) file a written request for a
meeting.

On any matter submitted to a vote of shareholders, shares are voted by
fund, unless an aggregate vote is required by the Investment Company Act of
1940. Shares are voted by fund with respect to the approval or amendment of such
fund's advisory contract. As of April 1, 1997, the Adviser held, in a fiduciary
capacity, more than 25% of the outstanding shares of the Mid Cap Index Fund and
the Small Cap Index Fund. Thus, the Adviser may be deemed to be a control person
of each of those funds as of that date. As of April 1, 1997, Alex. Brown & Sons
Incorporated held more than 25% of the outstanding shares of the Index Plus
Fund. Thus, Alex. Brown & Sons Incorporated may be deemed to be a control person
of this fund as of that date.

As of April 1, 1997, the shareholders of the Index Plus Fund controlled
approximately 85% of the outstanding shares of the Trust. Therefore, in the
foreseeable future, when the shareholders of the Trust elect the Trustees or
vote in the aggregate on any other issue, the shareholders of the Index Plus
Fund will be able to elect the Trustees or to decide the issue. Shareholders do
not have cumulative voting rights as to the election of Trustees. As a result,
if a shareholder meeting is called to elect Trustees, a majority of the shares
voting at the meeting can elect all of the Trustees.

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<PAGE> 33

- --------------------------------------------------------------------------------

THE GATEWAY TRUST

- --------------------------------------------------------------------------------

Registration Statement
Securities Act of 1933 Registration No. 2-59895
Investment Company Act of 1940 Registration No. 811-02773

STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1997

This Statement is not a prospectus but should be read in conjunction
with the current Prospectus of The Gateway Trust for the Gateway Index Plus
Fund, the Gateway Mid Cap Index Fund, and the Gateway Small Cap Index Fund dated
May 1, 1997. A copy of the Prospectus may be obtained from the Trust by written
or telephone request directed to the Trust at the address or the telephone
number shown below.

- --------------------------------------------------------------------------------
P. O. BOX 5211
CINCINNATI, OHIO 45201-5211
(800) 354-6339
- --------------------------------------------------------------------------------

<PAGE> 34

TABLE OF CONTENTS
-----------------

<TABLE>
<S> <C>
TABLE OF CONTENTS.........................................................

INTRODUCTION..............................................................

General Information About The Gateway Trust..........................

INVESTMENT OBJECTIVES AND PRACTICES.......................................

Gateway Index Plus Fund..............................................
Gateway Mid Cap Index Fund...........................................
Gateway Small Cap Index Fund.........................................

OPTION TRANSACTIONS.......................................................

Selling Covered Call Options.........................................
Selling Covered Put Options..........................................
Purchase Of Put And Call Options.....................................
Options on Securities Indexes........................................
Covered Index Call Options Sold By The Index Plus Fund...............

INVESTMENT PRACTICES, RISKS, AND RESTRICTIONS.............................

Other Investment Practices...........................................
Certain Risks........................................................
Investment Restrictions..............................................

PERFORMANCE AND RISK INFORMATION..........................................

Performance Information..............................................

Total Return Calculations......................................
Historical Results.............................................

Risk Information.....................................................

Comparative Indexes............................................
Standard Deviation.............................................
Beta...........................................................

Rankings And Comparative Performance Information.....................

SHAREHOLDER SERVICES......................................................

Open Account.........................................................
</TABLE>

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<PAGE> 35

<TABLE>
<S> <C>
Automatic Investment Program.........................................
IRAs.................................................................

Systematic Withdrawal Program........................................

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................

INVESTMENT ADVISORY AND OTHER SERVICES....................................

Gateway Investment Advisers, L.P.....................................
Investment Advisory Contracts........................................
Custodian............................................................
Shareholder Servicing, Transfer, Dividend Disbursing, And Financial
Servicing Agent......................................................

BROKERAGE.................................................................

ADDITIONAL TAX MATTERS....................................................

Federal Tax Matters..................................................
State And Local Tax Aspects..........................................

TRUSTEES AND OFFICERS OF THE TRUST........................................

INDEPENDENT PUBLIC ACCOUNTANTS AND FINANCIAL STATEMENTS...................

PRINCIPAL HOLDERS OF FUND SHARES..........................................

Index Plus Fund......................................................
Mid Cap Index Fund...................................................
Small Cap Index Fund.................................................
Shares Held By Adviser...............................................

SCHEDULE A................................................................

SCHEDULE B................................................................

SCHEDULE C................................................................

SCHEDULE D................................................................
</TABLE>

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<PAGE> 36

INTRODUCTION
------------

GENERAL INFORMATION ABOUT THE GATEWAY TRUST

The Gateway Trust (the "Trust") is an Ohio business trust which is
authorized to establish and operate one or more separate series of mutual funds
(herein referred to as "funds" or individually as a "fund"). Each fund has its
own investment policies, restrictions, practices, assets, and liabilities. Each
fund is represented by a separate series of shares of beneficial interest in the
Trust ("Shares"). The Trust's operation is governed by Chapter 1746 of the Ohio
Revised Code, by the Second Amended Agreement and Declaration of Trust dated as
of December 29, 1992, as amended, and by the Trust's Bylaws, as amended.

At present, there are four series of the Trust:

<TABLE>
<CAPTION>
- --------------------------------------------- --------------------------
NAME OF FUND DATE ORGANIZED
- --------------------------------------------- --------------------------

<S> <C>
Gateway Index Plus Fund 1977

Gateway Mid Cap Index Fund July 1992

Gateway Small Cap Index Fund April 1993

Cincinnati Fund November 1994
- --------------------------------------------- --------------------------
</TABLE>

Gateway Index Plus Fund was known as Gateway Option Index Fund until
March 1990; as Gateway Option Income Fund until February 1988; and as Gateway
Option Income Fund, Inc. until May 1986. Gateway Mid Cap Index Fund was known as
Gateway Capital Fund until December 1993.

Gateway Option Income Fund, Inc., the predecessor to the Trust, was
organized in 1977 as a Maryland corporation. It was reorganized to become the
Trust effective as of May 2, 1986, with the Gateway Option Income Fund as its
sole initial fund. As a result of the transaction, shareholders of the
corporation on May 2, 1986, became shareholders of the Option Income Fund.

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<PAGE> 37

INVESTMENT OBJECTIVES AND PRACTICES
-----------------------------------

GATEWAY INDEX PLUS FUND

The Index Plus Fund's investment objective is to achieve a high total
return at a reduced level of risk. Descriptions of the Fund's current investment
practices and strategies and certain risk factors applicable to the Fund are set
forth under the caption "INVESTMENT PRACTICES" in the Combined Prospectus.

The Index Plus Fund primarily invests in a portfolio of common stocks
which parallels the composition of the Standard & Poor's 100 Stock Index (the
"100 Index"). A list of the companies whose stocks are included in the 100 Index
is set forth in Schedule "A" attached to this Statement. The Fund sells call
options on the 100 Index and, when appropriate, the Fund enters into closing
purchase transactions with respect to such options. he Fund occasionally
purchases put options on securities indexes.

In addition, the Fund has authority to, and when deemed appropriate
may, invest in the stocks of other securities indexes, sell put options on
securities indexes, and purchase call options on securities indexes; however,
the Fund does not intend to enter into these types of transactions in the coming
year.

GATEWAY MID CAP INDEX FUND

The Mid Cap Index Fund's primary investment objective is long-term
growth of capital with a secondary objective of conserving principal.
Descriptions of the Fund's current investment practices and strategies and
certain risk factors applicable to the Fund are set forth under the caption
"INVESTMENT PRACTICES" in the Combined Prospectus.

The Mid Cap Index Fund primarily invests in a portfolio of common
stocks which parallels the composition of the S&P MidCap 400 Index (the "400
Index"). A list of the companies whose stocks are included in the 400 Index is
set forth in Schedule "B" attached to this Statement. Because the 400 Index is
composed of 400 equity securities and the Fund purchases such securities in
round lots, the portfolio does not correlate perfectly with the 400 Index.
Although the Adviser to the funds, Gateway Investment Advisers, L.P. (the
"Adviser") monitors the Mid Cap Index Fund portfolio so that the percentage of
assets invested in each stock in the Mid Cap Index Fund substantially
corresponds to the composition of the 400 Index, the Fund bears the risk that
the price of its portfolio will not increase as much as (or will decrease more
than) the 400 Index.

The Mid Cap Index Fund may also purchase put and call options on
securities indexes such as the S&P 500 Index, the 400 Index, and similar middle
capitalization securities indexes. The Mid Cap Index Fund limits its aggregate
investment in premiums on put and call options to an amount not exceeding 5% of
the Fund's net assets.

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<PAGE> 38

GATEWAY SMALL CAP INDEX FUND

The investment objective of the Small Cap Index Fund is to achieve
long-term growth of capital. Descriptions of the Fund's current investment
practices and strategies and certain risk factors applicable to the Fund are set
forth under the caption "INVESTMENT PRACTICES" in the Combined Prospectus.

The Small Cap Index Fund primarily invests in a portfolio of common
stocks which parallels the composition of the Wilshire Small Cap Index (the "250
Index"). A list of the companies whose stocks are included in the 250 Index is
set forth in Schedule "C" attached to this Statement. Because the 250 Index is
comprised of 250 equity securities and the Fund purchases such securities in
round lots, the portfolio does not correlate perfectly with the 250 Index.
Although the Adviser monitors the Small Cap Index Fund portfolio so that the
percentage of assets invested in each stock in the Small Cap Index Fund
substantially corresponds to the composition of the 250 Index, the Fund bears
the risk that the price of its portfolio will not increase as much as (or will
decrease more than) the 250 Index.

The Small Cap Index Fund may also purchase put and call options on
securities indexes such as the S&P 500 Index, the 250 Index, the Russell 2000
Index, and comparable small capitalization securities indexes. The Small Cap
Index Fund limits its aggregate investment in premiums on put and call options
to an amount not exceeding 5% of the Fund's net assets. Options on the 250 Index
are a relatively new investment vehicle and the secondary market for any
particular option on this index at a specific time may be limited.

OPTION TRANSACTIONS
-------------------

This section contains a brief general description of various types of
options, certain option trading strategies, and some of the risks of option
trading. It is included to help a shareholder understand the investment
practices of the funds. It is easier to understand index options if you
understand options on individual stocks. For this reason, the first three parts
of this section discuss individual stock options.

SELLING COVERED CALL OPTIONS

A covered call option is an option sold on a security owned by the
seller of the option. If the option is exercised by the purchaser during the
option period, the seller is required to deliver the underlying security against
payment of the exercise price. The seller's obligation terminates upon
expiration of the option period or when the seller executes a closing purchase
transaction with respect to such option.

The seller of a covered call option gives up, in return for the
premium, the opportunity to profit from an increase in the value of the
underlying security above the exercise price. At the same time, the seller
retains the risk of loss from a decline in the value of the underlying security
during the option period. Although the seller may terminate its obligation by
executing a closing purchase transaction, the cost of effecting such a
transaction may be greater than the premium received upon its sale, resulting in
a loss to the seller. If such an option expires unexercised, the

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<PAGE> 39

seller realizes a gain equal to the premium received. Such a gain may be offset
or exceeded by a decline in the market value of the underlying security during
the option period. If an option is exercised, the exercise price, the premium
received, and the market value of the underlying security determine the gain or
loss realized by the seller.

The Index Plus Fund is the only Gateway fund authorized to sell covered
call options. A more complete description of the details and risks involved in
selling covered call options is set forth below under the caption "COVERED INDEX
CALL OPTIONS SOLD BY THE INDEX PLUS FUND."

SELLING COVERED PUT OPTIONS

The seller of a covered put option has the obligation to buy, and the
purchaser the right to sell, the underlying security at the exercise price
during the option period. To cover a put option, a seller usually deposits U. S.
government securities (or other high-grade debt obligations) in a segregated
account at the seller's custodian. The value of the deposited securities is
equal to or greater than the exercise price of the underlying security. The
value of the deposited securities is marked to market daily and, if necessary,
additional assets are placed in the segregated account to maintain a value equal
to or greater than the exercise price. The seller maintains the segregated
account so long as it is obligated as the seller. The obligation of the seller
is terminated when the purchaser exercises the put option, when the option
expires, or when a closing purchase transaction is effected by the seller.

The seller's gain on the sale of a put option is limited to the premium
received plus interest earned on its segregated account. The seller's potential
loss on a put option is determined by taking into consideration the exercise
price of the option, the market price of the underlying security when the put is
exercised, the premium received, and the interest earned on its segregated
account. Although a seller risks a substantial loss if the price of the stock on
which it has sold a put option drops suddenly, the seller can protect itself
against serious loss by entering into a closing purchase transaction. The degree
of loss will depend upon the seller's ability to detect the movement in the
stock's price and to execute a closing transaction at the appropriate time.

The Index Plus Fund is the only Gateway fund authorized to sell covered
put options. To comply with state securities requirements, the Fund will not
sell any covered put option if, as a result, the Fund would have to invest more
than 50% of its total assets (taken at current value) to meet its obligation
upon the exercise of put options.

PURCHASE OF PUT AND CALL OPTIONS

Put options can be employed to protect against declines in the market
value of portfolio securities or to attempt to retain unrealized gains in the
value of portfolio securities. Put options might also be purchased to facilitate
the sale of portfolio securities. Call options can be purchased as a temporary
substitute for the purchase of individual stocks, which then could be purchased
in orderly fashion. Upon the purchase of the stocks, the purchaser would
normally terminate the call position.

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<PAGE> 40

The purchase of both put and call options involves the risk of loss of
all or part of the premium paid. If the price of the underlying stock does not
rise (in the case of a call) or drop (in the case of a put) by an amount at
least equal to the premium paid for the option contract, the purchaser will
experience a loss on the option contract equal to the deficiency.

The Index Plus Fund, the Mid Cap Index Fund, and the Small Cap Index
Fund each are authorized to purchase index put and call options. Each fund
limits its aggregate investment in premiums on put and call options to an amount
not exceeding 5% of its net assets.

OPTIONS ON SECURITIES INDEXES

An option on a securities index is generally similar to an option on an
individual stock, but an option on a securities index is settled only in cash.
The exercising holder of an index option, instead of receiving a security,
receives the difference between the closing price of the securities index and
the exercise price of the index option times a specified multiple ($100 in the
case of the S&P 100 Stock Index). The seller of index options may realize a gain
or loss according to movement in the level of securities prices in that index
and in the securities markets generally.

COVERED INDEX CALL OPTIONS SOLD BY THE INDEX PLUS FUND

The Index Plus Fund sells call options on the 100 Index in an attempt
to earn a greater total return over the long term than it would earn by
investing only in the stocks in the 100 Index.

Frequently the Fund executes a closing purchase transaction with
respect to the option it has sold and sells another option (with either a
different exercise price or expiration date or both) on the 100 Index. The
Fund's objective in entering into such closing transactions is to increase
option premium income, to limit losses, or to protect anticipated gains in
underlying stocks. The cost of a closing transaction, while reducing the premium
income realized from the sale of the option, should be offset, at least in part,
by appreciation in the value of the underlying index, and by the opportunity to
realize additional premium income from selling a new option.

When the Fund sells a call option on the 100 Index, it does not deliver
the underlying stocks or cash to the broker through whom the transaction is
effected. In the case of an exchange-traded option, the Fund establishes an
escrow account. The Trust's Custodian (or a securities depository acting for the
Custodian) acts as the Trust's escrow agent. The escrow agent enters into
documents known as escrow receipts with respect to the stocks included in the
100 Index (or escrow receipts with respect to other acceptable securities). The
escrow agent releases the stocks from the escrow account when the call option
expires or the Fund enters into a closing purchase transaction. Until such
release, the underlying stocks cannot be sold by the Fund. The Fund may enter
into similar collateral arrangements with the counterparty when it sells
over-the-counter index call options.

When the Fund sells a call option on the 100 Index, it is also required
to "cover" the option pursuant to requirements enunciated by the staff of the
Securities and Exchange Commission ("the SEC"). The staff has indicated that a
mutual fund may "cover" an index call option by (1) owning and holding for the
term of the option the securities against which the call

Page 8
<PAGE> 41

option is written; (2) purchasing an American-style call option on the same
index with an exercise price no greater than the exercise price of the written
option; or (3) establishing and maintaining for the term of the option a
segregated account consisting of cash, U. S. government securities, or other
high-grade debt securities, equal in value to the aggregate contract price of
the call option (the current index value times the specific multiple). The Fund
generally "covers" the index options it has sold by owning and holding the
stocks included in the 100 Index. As an alternative method of "covering" the
option, the Fund may purchase an appropriate offsetting option on the 100 Index.

The purchaser of an index call option sold by the Fund may exercise the
option at a price fixed as of the closing level of the 100 Index on the date of
exercise. Unless the Fund has liquid assets sufficient to satisfy the exercise
of the index call option, the Fund would be required to liquidate portfolio
securities to satisfy the exercise. The market value of such securities may
decline between the time the option is exercised and the time the Fund is able
to sell the securities. If the Fund fails to anticipate an exercise, it may have
to borrow from a bank (in amounts not exceeding 5% of the Fund's total assets)
pending settlement of the sale of the portfolio securities and thereby incur
interest charges. If trading is interrupted on the 100 Index, the Fund would not
be able to close out its option positions.

The Index Plus Fund has the authority to sell covered call options on
indexes other than the 100 Index. If the Fund did so, considerations similar to
those described above would be applicable to such options.

Additional information about the Fund's investment practices and
strategies with respect to option transactions, and certain risks related to
such transactions, is set forth under the caption "INVESTMENT Practices" in the
Combined Prospectus.

INVESTMENT PRACTICES, RISKS, AND RESTRICTIONS
---------------------------------------------

OTHER INVESTMENT PRACTICES

Each fund may hold cash for purposes of liquidity or for temporary
defensive purposes. Each fund generally will hold cash reserves for the purpose
of paying expenses and share redemptions and may hold cash received from the
sale of its shares which has not yet been invested. In addition, the Adviser may
determine from time to time that, for temporary defensive purposes, one or more
funds should reduce (and in periods of unusual market conditions reduce
substantially or liquidate entirely) its investment in common stock. For
temporary defensive purposes, each fund may hold up to 100% of its assets in
cash.

Cash is normally invested in repurchase agreements. Cash may also be
invested in securities of the U. S. government or any of its agencies, bankers'
acceptances, commercial paper, or certificates of deposit Commercial paper
investments will be limited to investment grade issues rated A-1 or A-2 by
Standard & Poor's or Prime-1 or Prime-2 by Moody's Investors Service, Inc.
Certificates of deposit investments will be limited to obligations of domestic
banks with assets of $1 billion or more.

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Repurchase agreements are instruments under which a fund buys
securities suitable for investment under its policies and obtains the concurrent
agreement of the seller (usually a bank) to repurchase such securities at an
agreed-upon date, price, and interest rate. Investments in repurchase agreements
are subject to the risk that the selling bank may default in its repurchase
obligation. However, not more than 5% of any fund's total assets may be invested
in repurchase agreements which have a maturity longer than seven days.

CERTAIN RISKS

The success of each fund's option strategy depends upon the ability of
the Adviser to identify an appropriate index in which to invest and the
Adviser's ability to enter into transactions involving index options at
appropriate times in the stock market cycle. In pursuing this course, the
Adviser is subject to the risks of change in general economic conditions,
adverse developments in specific industries, and factors affecting the
performance of individual stocks.

Standard and Poor's ("S&P") obtains information for inclusion in or for
use in the calculation of the S&P 100 Index and the S&P MidCap 400 Index from
sources which S&P considers reliable. S&P HAS ADVISED THE TRUST THAT IT MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE TRUST, OWNERS
OF THE INDEX PLUS FUND OR THE MID CAP INDEX FUND, OR ANY OTHER PERSON OR ENTITY
FROM THE USE OF THE S&P 100 INDEX, THE S&P MIDCAP 400 INDEX, OR ANY DATA
INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY
EXPRESSLY DISCLAIMS ALL SUCH WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, FOR USE WITH RESPECT TO THE S&P 100 INDEX, THE S&P MIDCAP
400 INDEX, OR ANY DATA INCLUDED THEREIN.

Wilshire Associates, Inc. ("Wilshire") obtains information for
inclusion in or for use in the calculation of the Wilshire Small Cap Index from
sources which Wilshire considers reliable. WILSHIRE HAS ADVISED THE TRUST THAT
IT MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE
TRUST, OWNERS OF THE SMALL CAP INDEX FUND, OR ANY OTHER PERSON OR ENTITY FROM
THE USE OF THE WILSHIRE SMALL CAP INDEX OR ANY DATA INCLUDED THEREIN. WILSHIRE
MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL SUCH
WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, FOR USE WITH
RESPECT TO THE WILSHIRE SMALL CAP INDEX OR ANY DATA INCLUDED THEREIN.

Other risks related to the investment practices and strategies of each
fund are described under the caption "INVESTMENT PRACTICES" in the Combined
Prospectus.

INVESTMENT RESTRICTIONS

The Trust has adopted certain fundamental policies with respect to each
of the funds that may not be changed without a vote of shareholders of that
fund. Under these policies, the Index Plus Fund, the Mid Cap Index Fund, and the
Small Cap Index Fund each are subject to the following restrictions:

1. A fund may not purchase any security if, as a result, the fund
(or the funds in the Trust together) would then hold more than
10% of any class of securities of an issuer (taking all common
stock issues of an issuer as a single class, all

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preferred stock issues as a single class, and all debt issues as
a single class), or more than 10% of the outstanding voting
securities of an issuer.

2. A fund may not purchase any security if, as a result, the fund
would then have more than 5% of its total assets (taken at
current value) invested in securities of companies (including
predecessors) less than three years old and in equity securities
for which market quotations are not readily available.

3. A fund may not purchase securities on margin (but a fund may
obtain such short-term credits as may be necessary for the
clearance of purchase and sales of securities).

4. A fund may not make short sales of securities or maintain a
short position (a) unless, at all times when a short position is
open, the fund owns an equal amount of such securities or
securities convertible into or exchangeable (without payment of
any further consideration) for securities of the same issue as,
and equal in amount to, the securities sold short, and (b)
unless not more than 10% of such fund's net assets (taken at
current value) are held as collateral for such sales at any one
time.

It is the present intention of management to make such sales
only for the purpose of deferring realization of gain or loss
for federal income tax purposes. It is the present intention of
management that short sales of securities subject to outstanding
options will not be made.

5. A fund may not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only from banks and
only in amounts not in excess of 5% of the fund's total assets
(except to meet redemption requests as discussed below), taken
at the lower of cost or market.

In order to meet redemption requests without immediately selling
any portfolio securities, a fund may borrow an amount up to 25%
of the value of its total assets including the amount borrowed.
If, due to market fluctuations or other reasons, the value of
such fund's assets falls below 400% of its borrowing, the fund
will reduce its borrowing which may result in the fund being
required to sell securities at a time when it may otherwise be
disadvantageous to do so. This borrowing is not for investment
leverage but solely to facilitate management of the portfolio by
enabling the fund to meet redemption requests where the
liquidation of portfolio securities is deemed to be inconvenient
or disadvantageous. However, the fund might be deemed to be
engaged in leveraging in that any such borrowing will enable the
fund to continue to earn money on investments which otherwise
may have been sold in order to meet redemption requests.

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<PAGE> 44

6. A fund may not pledge more than 10% of its total assets, taken
at market value. The deposit in escrow of underlying securities
in connection with the writing of call options is not deemed to
be a pledge.

7. A fund may not purchase or retain securities of any company if,
to the knowledge of the Trust, officers and trustees of the
Trust or of the Adviser who individually own more than 1/2 of 1%
of the securities of that company together own beneficially more
than 5% of such securities.

8. A fund may not buy or sell commodities or commodities futures or
options contracts, or real estate or interests in real estate,
although it may purchase and sell (a) securities which are
secured by real estate, and (b) securities of companies which
invest or deal in real estate.

9. A fund may not act as underwriter except to the extent that, in
connection with the disposition of portfolio securities, it may
be deemed to be an underwriter under certain provisions of the
federal securities laws.

10. A fund may not make investments for the purpose of exercising
control or management.

11. A fund may not participate on a joint or joint and several basis
in any trading account in securities.

12. A fund may not purchase any security restricted as to
disposition under the federal securities laws.

13. A fund may not invest in securities of other investment
companies, except as part of a merger, consolidation, or other
acquisition.

14. A fund may not invest in interests in oil, gas, or other mineral
exploration or development programs, although it may invest in
the common stocks of companies which invest in or sponsor such
programs.

15. A fund may not make loans, except through the purchase of bonds,
debentures, commercial paper, corporate notes, and similar
evidences of indebtedness of a type commonly sold privately to
financial institutions (subject to the limitation in paragraph
12 above), and except through repurchase agreements.

No more than 5% of the fund's assets will be invested in
repurchase agreements which have a maturity longer than seven
days. In addition, the fund will not enter into repurchase
agreements with a securities dealer if such transactions
constitute the purchase of an interest in such dealer under the
Investment Company Act of 1940. The purchase of a portion of an
issue of such securities distributed publicly, whether or not
such purchase is made on the original issuance, is not
considered the making of a loan.

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<PAGE> 45

16. A fund may not purchase any security (other than U. S.
government obligations) if, as a result thereof, less than 75%
of the value of the fund's total assets is represented by cash
and cash items (including receivables), government securities,
and other securities which, for purposes of this calculation,
are limited in respect of any one issuer to an amount not
greater in value than 5% of the value of the fund's total assets
and to not more than 10% of the outstanding voting securities of
such issuer.

All of the funds in the Trust taken as a group also must satisfy
this 10% test.

17. A fund may not concentrate the investments of the fund in a
single industry nor invest more than 25% of the current value of
its total assets in a single industry.

18. A fund may not sell call or put options, or purchase call or put
options, except that (a) the Index Plus Fund may (i) sell
covered call options with respect to all of its portfolio
securities or with respect to securities indexes; (ii) purchase
exchange-traded put and call options, provided that after any
such purchase not more than 5% of the Fund's net assets would be
invested in premiums on the purchase of put and call options or
combinations thereof; (iii) sell covered put options, provided
that after any such sale the Index Plus Fund would not have more
than 50% of its total assets (taken at current value) subject to
being invested on the exercise of put options; and, (iv) enter
into closing purchase transactions with respect to such options,
and (b) the Mid Cap Index Fund and the Small Cap Index Fund each
may purchase exchange-traded puts and calls provided that after
any such purchase not more than 5% of the Fund's assets would be
invested in premiums on the purchase of such options.

The Trust has no fundamental policy with respect to the issuance of
senior securities by any fund; however, the Investment Company Act of 1940
prohibits the Trust's issuance of any such securities.

In addition to these fundamental policies, each fund will limit its
investment in warrants to no more than 5% of such fund's assets. The Adviser has
no current intention of causing any fund to invest in warrants in the coming
year.

Although the practices described in paragraphs 4, 5, and 6 above could
involve more than 5% of a fund's assets, none of those practices has been
employed by any fund (or the Index Plus Fund's predecessor, Gateway Option
Income Fund, Inc.) since January 1, 1983. The Adviser has no current intention
of causing any fund to employ any such practice in the coming year.

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<PAGE> 46

PERFORMANCE AND RISK INFORMATION
--------------------------------

PERFORMANCE INFORMATION

The funds may quote performance in various ways. All performance
information supplied by the funds is based upon historical results and is not
intended to indicate future performance. Total returns and other performance
information may be shown numerically or in a table, graph, or similar
illustration. A fund's share prices and total returns fluctuate in response to
market conditions, interest rates, and other factors.

TOTAL RETURN CALCULATIONS
-------------------------

Total returns reflect all aspects of a fund's return, including the
effect of reinvesting dividends and capital gain distributions, and any change
in a fund's net asset value per share (the "NAV") over the period.

Average annual total returns are calculated by determining the average
annual compounded rates of return over one-, five-, and ten-year periods that
would equate an initial hypothetical investment to the ending redeemable value
according to the following formula.

P (1 + T)n = ERV where T equals: Average annual total return
n equals: Number of years and portion of a year
ERV equals: Ending redeemable value (of an initial
hypothetical $1,000 investment) at the
end of the period
P equals: $1,000 (the hypothetical initial
investment)

If a fund has been in existence for less than one, five, or ten years,
the time period since the date it commenced operations will be substituted for
the periods stated.

As a hypothetical example, a cumulative return of 100% growth on a
compounded basis in ten years would produce an average annual total return of
7.18%, which is the annual rate that would equal 100% growth on a compounded
basis in ten years. While average annual total returns are convenient means of
comparing investment alternatives, investors should realize that a fund's
performance is not constant over time, but changes from year to year, and that
average annual total returns represent averaged figures as opposed to the actual
year-to-year performance of the fund.

Average annual total return is calculated as required by applicable
regulations promulgated by the SEC. In addition to average annual total returns,
a fund may quote year-by-year total returns and cumulative total returns
reflecting the simple change in value of any investment over a stated period.
Average annual, year-by-year, and cumulative total returns may be quoted as a
percentage or as a dollar amount.

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HISTORICAL RESULTS
------------------

The following table shows each fund's average annual and cumulative
total returns for the period ended December 31, 1996:

<TABLE>
<CAPTION>
- --------------------------------------------- --------------- --------------- --------------- ---------------------
AVERAGE ANNUAL TOTAL RETURN ONE YEAR FIVE YEAR TEN YEARS LIFE OF FUND
- --------------------------------------------- --------------- --------------- --------------- ---------------------

<S> <C> <C> <C> <C>
Index Plus Fund 10.53% 7.91% 9.88% 10.33%
Mid Cap Index Fund 15.33 N/A N/A 9.25
Small Cap Index Fund 17.04 N/A N/A 10.57
- --------------------------------------------- --------------- --------------- --------------- ---------------------

- --------------------------------------------- --------------- -------------- ---------------- ---------------------
CUMULATIVE TOTAL RETURN ONE YEAR FIVE YEAR TEN YEARS LIFE OF FUND
- --------------------------------------------- --------------- -------------- ---------------- ---------------------

Index Plus Fund 10.53% 46.32% 156.63% 552.30%
Mid Cap Index Fund 15.33 N/A N/A 45.66
Small Cap Index Fund 17.04 N/A N/A 42.74
- --------------------------------------------- --------------- -------------- ---------------- ---------------------
</TABLE>

The table below shows the redeemable value on December 31, 1996, for an
initial investment of $10,000 in the fund that was made at the beginning of the
one-, five-, and ten-year periods, or at the commencement of the fund's
operations. The table assumes all dividends and distributions have been
reinvested in additional fund shares.

<TABLE>
<CAPTION>
- --------------------------------------------- --------------- -------------- ---------------- ---------------------
ONE YEAR FIVE YEARS TEN YEARS LIFE OF FUND
- --------------------------------------------- --------------- -------------- ---------------- ---------------------

<S> <C> <C> <C> <C>
Index Plus Fund $11,053 $14,632 $25,562 $65,230
Mid Cap Index Fund $11,153 N/A N/A $14,566
Small Cap Index Fund $11,704 N/A N/A $14,274
- --------------------------------------------- --------------- -------------- ---------------- ---------------------
</TABLE>

RISK INFORMATION

In evaluating the performance of any investment including an a Gateway
Fund, it is important to understand the risks involved in the investment.
Information regarding the performance of an investment, while valuable in
itself, is more meaningful when it is related to the level of risk associated
with that investment. Thus, two different mutual funds that produce similar
average annual total returns may present markedly different investment
opportunities if the risk of loss associated with one mutual fund is greater
than that of the other mutual fund.

For example, an investment in a mutual fund that invests in stocks
generally will present greater potential for variation in the share price of the
mutual fund, and hence a greater risk of gain or loss than an investment in a
mutual fund that invests in short-term U. S. government securities. Because the
potential for greater gain typically carries with it a greater degree of risk,
the advisability of an investment in a particular mutual fund for a given
investor will depend not only on historical performance of the fund but also on
the potential for gain and loss associated with that mutual fund.

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<PAGE> 48

The Gateway Trust offers four different funds that produce different
total returns and present different risk potentials. The difference in risk
potential can be demonstrated by various statistical concepts. The following
statistical concepts can be used to measure some of the risks associated with an
investment in each fund.

COMPARATIVE INDEXES
-------------------

The performance and risk of the Index Plus Fund, the Mid Cap Index
Fund, and the Small Cap Index Fund may be compared to various broadly recognized
indexes such as the S&P 500 Index or the Lehman Government/Corporate Bond Index.
These comparative indexes are used because they are the standard benchmarks of
the stock market and bond market respectively. A fund's performance and risk may
also be compared to other appropriate indexes.

STANDARD DEVIATION
------------------

Standard deviation measures the volatility of the total return of a
fund. Standard deviation is one method of comparing the total return of a fund
to the average monthly total return of the fund. In general, a fund that has a
greater standard deviation is a fund that has displayed a greater tendency to
vary from its own average monthly total return. Standard deviation can also be
used to compare the total return of a fund to the total return of an index or
another mutual fund. By comparing the magnitude of the standard deviation of
each investment, an analyst is able to determine the relative volatility of each
investment.

For example, as of December 31, 1996, the annual standard deviation for
the Index Plus Fund over the past three years was 4.31% while the standard
deviation for the S&P 500 Index was 9.58% Thus, the S&P 500 Index was more than
twice as volatile as the Index Plus Fund. An investment with an expected return
of 10% and a standard deviation of 15% would be expected to earn a total return
ranging from -5% to +25% about 68% of the time, a total return ranging from -20%
to +40% about 95% of the time, and a total return ranging from -35% to +55%
about 97% of the time.

BETA
----

Beta analyzes the market risk of a fund by showing how responsive the
fund is to the market as defined by an index. Beta is a comparative measure of a
fund's volatility in relation to an appropriate index. Generally, higher betas
represent riskier investments. By definition, the beta of the market is 1.00.
Thus, a fund with a beta higher than 1.00 is expected to perform better than the
market in up markets and worse than the market in down markets.

For example, the beta of the Index Plus Fund was 0.32 for the five-year
period ended December 31, 1996. The Index Plus Fund would be expected to perform
approximately 1/3 as well as the market (as defined by S&P 500 Index) in up
markets and 1/3 as poorly as the market in down markets. Beta is the slope of
the "least square line" which compares the fund with an index.

RANKINGS AND COMPARATIVE PERFORMANCE INFORMATION

Each fund may compare its performance to that of other mutual funds or
categories of mutual funds as reported by independent services such as
Morningstar, Inc., Lipper Analytical Services, Inc., and Value Line Mutual Fund
Survey, or by other financial publications with a

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<PAGE> 49

circulation of 10,000 readers or more. Performance comparisons may be expressed
as ratings, such as the proprietary ratings published by Morningstar, Inc., or
rankings, such as the rankings of funds in various categories published by
Lipper Analytical Services, Inc. Performance comparisons may also be expressed
as designations (such as a certain number of "stars") or descriptions (such as
"best fund") assigned by such services or publications.

SHAREHOLDER SERVICES
--------------------

Gateway Investment Advisers, L.P. serves as the Trust's shareholder
servicing, transfer, dividend disbursing, and financial servicing agent (the
"Servicing Agent"). In this capacity, it performs various shareholder services
on behalf of the Trust.

OPEN ACCOUNT

Each fund's regular account for investors who purchase its shares is
the Open Account. The open account facilitates regular purchases of fund shares
over a period of years and provides the option of receiving dividends and
distributions either in cash or in fund shares. Gateway does not charge for the
automatic reinvestment of dividends and distributions.

The Servicing Agent maintains a record of the investor's purchases,
redemptions, and share balances in the investor's Open Account. Shortly after
each purchase, the Servicing Agent will mail a confirmation to the investor
showing the shares purchased, the exact price paid for the shares, and the total
number of shares owned. Share certificates will not be issued.

Upon opening an account, the investor may elect either of the following
options: (1) reinvestment at net asset value of all distributions, or (2)
payment in cash of all distributions. If no election is made, all distributions
will be reinvested at net asset value. An election may be changed by a letter or
telephone call to the Servicing Agent. No annual maintenance fees are charged by
the Trust on any Open Account. The Trust reserves the right to charge annual
fees in the future. Shareholders will be notified of any change in the annual
fee arrangement.

AUTOMATIC INVESTMENT PLAN

For established accounts, shares of any of the funds may be purchased
on a monthly or quarterly basis in amounts of $100 or more per purchase.
Shareholder Services can arrange to have such funds transferred automatically
from an investor's bank account to the Trust for purchase of shares. An investor
can make arrangements to use the Automatic Investment Program (or discontinue
participation) by contacting Shareholder Services at (800) 354-6339.

IRAS

Investors may purchase shares of any Gateway fund through Individual
Retirement Accounts ("IRAs") which are permitted to invest in shares of a mutual
fund. The Trust itself sponsors a form of IRA (the "Gateway IRA") which can be
adopted by an investor and which is specifically designed to permit the investor
to invest in shares of any Gateway fund selected by

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<PAGE> 50

the investor. The custodian of the Gateway IRA is Star Bank. Investors can
obtain forms to establish a Gateway IRA by calling Shareholder Services at (800)
354-6339.

An IRA is a special program with certain tax benefits that generally
permits an investor to establish and contribute to his or her own retirement
plan. For detailed information about a Gateway IRA, please refer to your IRA
Investment Kit which can be obtained by calling Shareholder Services at (800)
354-6339.

An investor may make a direct transfer of assets from one IRA to a
Gateway IRA by directing the existing IRA custodian or trustee to transfer
directly to a Gateway IRA the amount held in that prior IRA, without directly
receiving those funds or being taxed on the transfer. There is no minimum
holding period for a direct transfer of IRA assets from one custodian or trustee
to another. An IRA Transfer Form is included in the IRA Investment Kit, or you
may call Shareholder Services at (800) 354-6339 to obtain a transfer form.

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<PAGE> 51

A Gateway IRA is eligible to receive direct rollovers of distributions
from a qualified employer plan. An investor can make a direct rollover by
instructing the employer's plan to wire the distribution to Star Bank as
custodian for the Gateway IRA. The distribution should be wired to:

The Gateway Trust c/o Star Bank, N.A.
ABA #042-0000-13
Cincinnati, Ohio
Name (insert investor name)
Gateway Account No. (insert investor account number)
Name of Gateway fund(s) in which you wish to invest

An investor can also make a direct rollover by instructing the
employer's plan to prepare a check for the amount to be rolled over payable to
"Star Bank, N.A., as Custodian of Individual Retirement Account of (insert
investor name)," and sending that check to Gateway. The check can also be
delivered in person to Gateway, or mailed to:

The Gateway Trust
Shareholder Services
P. O. Box 5211
Cincinnati, OH 45201-5211

An investor can make a 60-day rollover of a distribution from a
qualified employer plan by instructing the employer's plan to prepare a check
payable to the investor and by endorsing or cashing the check and depositing
some or all of the proceeds in a Gateway IRA. The deposit must be delivered in
person to Gateway, or mailed to The Gateway Trust at the above address within 60
days of when the investor receives the distribution. The employer's plan must
withhold 20% of the taxable amount for federal income tax if the investor
chooses a 60-day rollover for the distribution.

Some portions of distributions from other IRAs or from tax-qualified
profit sharing, stock bonus, pension, or annuity plans are not eligible for
regular or direct rollovers. For instance, distributions of nontaxable after-tax
employee contributions or required minimum payments made after an individual
reaches age 70 1/2 cannot be rolled over.

To make a withdrawal from a Gateway IRA, an investor should contact
Shareholder Services at (800) 354-6339.

The rules for contributing to, investing under, and distributing from
IRAs are complex, and any investor should consult with his or her own tax
adviser if he or she has any questions with respect to IRAs and to determine if
there have been any recent changes to the rules. At the time an IRA is
established, the custodian or trustee of the IRA is required by law to provide a
disclosure statement to the individual setting forth important information
concerning IRAs.

Further information concerning IRAs can be obtained from any district
office of the Internal Revenue Service. In particular, Publication 590 of the
Internal Revenue Service provides general information as to IRAs.

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<PAGE> 52

No annual maintenance fees are charged by the Trust for any account,
including IRAs, SEP-IRAs, SIMPLE IRAs, retirement, and pension or profit-sharing
plans, including a 401(k) plan. The Trust reserves the right to charge annual
fees in the future. Shareholders will be notified of any change in the annual
fee arrangement.

SYSTEMATIC WITHDRAWAL PROGRAM

If the value of a shareholder's account is at least $5,000, the
shareholder can request withdrawals on either a monthly or a quarterly basis in
the minimum amount of $100. The Trust makes no recommendation as to the minimum
amount to be periodically withdrawn by a shareholder. A sufficient number of
shares in the shareholder's account will be sold periodically (normally one
business day prior to each withdrawal payment date) to meet the requested
withdrawal payments.

If a shareholder participates in the Systematic Withdrawal Program, all
dividends and distributions on shares held in the account will be reinvested in
additional shares at net asset value. Since the withdrawal payments represent
the proceeds from sales of the fund shares, there will be a reduction, and there
could even be an eventual depletion, of the amount invested in the funds to the
extent that withdrawal payments exceed the dividends and distributions paid and
reinvested in shares. Withdrawals under the Systematic Withdrawal Program should
not, therefore, be considered a yield on investment. A shareholder can make
arrangements to use the Systematic Withdrawal Program (or discontinue
participation) by contacting Shareholder Services at (800) 354-6339.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------

Basic information concerning the purchase and redemption of shares is
set forth under the captions "HOW TO PURCHASE ADDITIONAL SHARES" and "HOW TO
REDEEM SHARES" in the Combined Prospectus. Shares of all funds are purchased and
redeemed at their net asset value as next determined following receipt of the
purchase order or redemption notice. Redemptions under the Systematic Withdrawal
Program and installment distributions from IRAs are effected at the net asset
value next determined on or after the date designated for the redemption or
distribution. Information as to the method of calculating the net asset value of
shares of any fund is included in the Combined Prospectus under the caption "HOW
FUND SHARES ARE PRICED."

Certificates for shares of any fund will not be issued.

The minimum initial investment is $1,000 ($500 for IRAs). The minimum
additional investment is $100, subject to certain exceptions such as investments
by the Adviser's employees, by participants in SEP-IRA or SIMPLE IRA programs,
and by participants in the Automatic Investment Program. The Trust reserves the
right to accept or reject any purchase order of any fund.

There is no minimum or maximum applicable to redemption of shares of
any fund. The Trust, however, reserves the right to redeem a shareholder's
account(s) under certain

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<PAGE> 53

circumstances. The shareholder will receive at least 60 days' written notice
prior to the redemption of the account(s).

The Trust may redeem a shareholder's account(s) in any fund when the
aggregate value of the shareholder's account(s) falls below $800 (other than as
a result of market action.). The shareholder may prevent such redemption by
increasing the value of the account(s) to $1,000 or more within the 60-day
period.

The Trust will redeem a shareholder's account if the shareholder does
not provide a valid U. S. social security number or taxpayer identification
number or other requested documents. The shareholder may prevent such redemption
by providing the requested information within the 60-day period.

The Trust reserves the right to terminate temporarily or permanently
the exchange privilege for any shareholder who makes an excessive number of
exchanges between funds. The shareholder will receive written notice that the
Trust intends to limit the shareholder's use of the exchange privilege.
Generally the Trust limits a shareholder to twelve exchange transactions per
calendar year. Accounts under common ownership or control, including accounts
with the same taxpayer identification number, normally will be counted as one
account for purposes of the exchange limit.

The Trust also reserves the right to terminate or modify the exchange
privilege or to refuse an exchange if the exchange would adversely affect a fund
involved in the exchange.

Signature guarantees are required for all redemptions, (on the date of
receipt by the Servicing Agent of all necessary documents), regardless of the
amount involved, when the proceeds are to be paid to someone other than the
registered owner(s). The signature guarantee requirement may be waived by the
Trust in certain instances. The Trust also reserves the right to require a
signature guarantee on any instructions or redemptions given to the Trust for
any reason. The purpose of signature guarantees is to prevent fraudulent
redemptions which could result in losses to the Trust, the Servicing Agent, or
shareholders. A signature guarantee will be accepted from banks, brokers,
dealers, municipal securities dealers or brokers, government securities dealers
or brokers, credit unions (if authorized by state law), national securities
exchanges, registered securities associations, clearing agencies, and savings
associations. Notary publics are unacceptable guarantors. The signature
guarantees must appear either (a) on the written request for redemption; (b) on
a stock power which should specify the total number of shares to be redeemed;
or, (c) on all stock certificates tendered for redemption.

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<PAGE> 54

utilizes is restricted as determined by the SEC; (c) if any emergency exists as
defined by the SEC so that disposal of investments or determination of a fund's
net asset value is not reasonably practicable; or, (d) for such other periods as
the SEC by order may permit for protection of the Trust's shareholders.

The Trust has elected to be governed by Rule18f-1 of the Investment
Company Act which obligates each fund to redeem shares in cash with respect to
any one shareholder during any 90-day period up to the lesser of $250,000 or 1%
of the assets of the fund. Although payment for redeemed shares generally will
be made in cash, under abnormal circumstances the Board of Trustees of the Trust
may determine to make payment in securities owned by the fund. In such event,
the securities will be selected in such manner as the Board of Trustees deems
fair and equitable, in which case brokerage and other costs may be incurred by
such redeeming shareholders in the sale or disposition of their securities. To
date, all redemptions have been made in cash.

The Trust reserves the right to modify or terminate any purchase,
redemption, or other shareholder service procedure upon notice to shareholders.

Purchases and redemptions generally may be effected only on days when
the stock and options exchanges are open for trading. These exchanges are closed
on Saturdays and Sundays and the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and
Christmas Day.

INVESTMENT ADVISORY AND OTHER SERVICES
--------------------------------------

GATEWAY INVESTMENT ADVISERS, L.P.

Gateway Investment Advisers, L.P., (the "Adviser"), a Delaware limited
partnership, has acted as the investment adviser for the funds since December
15, 1995. Gateway Investment Advisers, Inc. ("GIA") provided investment advisory
services to the funds from their formation until December 15, 1995. The Adviser
became the successor in interest to the assets, business, and personnel of GIA
which was organized in June 1977. GIA is the general partner of the Adviser with
a 76% ownership interest, while Alex. Brown Investments Incorporated ("ABII") is
the sole limited partner with a 24% ownership interest. ABII is an affiliate of
Alex. Brown & Sons Incorporated, a nationally known investment banking firm and
registered broker/dealer located in Baltimore, Maryland. Walter G. Sall,
Chairman and a Trustee of the Trust, and J. Patrick Rogers, the portfolio
manager of the funds and President of the Trust, together own of record and
beneficially 99.85% of the outstanding shares of GIA and thereby control the
Adviser. Mr. Sall is Chairman and a director of GIA and Mr. Rogers is its
President and a director. The third director of GIA is Margaret-Mary V. Preston
who is employed by Alex. Brown & Sons Incorporated as a Managing Director. .

INVESTMENT ADVISORY CONTRACTS

The Trust has retained the Adviser under investment advisory contracts
("Adviser Contracts") to act as investment manager and in such capacity
supervise the investments of the

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<PAGE> 55

Gateway funds, subject to the policies and control of the Trust's Board of
Trustees. The Adviser Contracts for the Index Plus Fund, Mid Cap Index Fund, and
Small Cap Index Fund became effective December 15, 1995. Services were provided
by GIA under substantially identical contracts prior to this date.

Pursuant to the Adviser Contracts, the Adviser, at its sole expense,
provides each fund with (i) investment recommendations regarding such fund's
investments; (ii) office space, telephones, and other office equipment; and,
(iii) clerical and secretarial staff and the services, without additional
compensation, of all officers of the Trust. In addition, the Adviser has agreed
to bear (i) advertising and other marketing expenses in connection with the sale
of the shares of the funds; (ii) expenses of printing and distributing
prospectuses and related documents to prospective shareholders; and, (iii)
association membership dues (other than for the Investment Company Institute).
The Adviser Contracts further provide that under certain circumstances the
Adviser may cause each fund to pay brokerage commissions in order to enable the
Adviser to obtain brokerage and research services for its use in advising such
fund and the Adviser's other clients, provided that the amount of commission is
determined by the Adviser, in good faith and in the best interests of the fund,
to be reasonable in relation to the value of the brokerage and research services
provided.

The Adviser Contracts provide that all expenses not specifically
assumed by the Adviser which may be incurred in the operation of the Trust and
the offering of its shares will be borne by the Trust. Such expenses will be
allocated among the funds in the Trust by direction of the Board of Trustees,
most frequently on the basis of expenses incurred by each fund, but where that
is not practicable on such basis as the Trustees determine to be appropriate.
Expenses to be borne by the Trust include:

- fees and expenses of trustees not employed by the Adviser;
- expenses of printing and distributing prospectuses to current
shareholders of the Trust;
- expenses pertaining to registering or qualifying the Trust or its
shares under various federal and state laws, and maintaining and
updating such registrations and qualifications.
- interest expense, taxes, fees, and commissions (including brokerage
commissions) of every kind;
- expenses related to repurchases and redemptions of shares;
- charges and expenses of custodians, transfer agents, dividend
disbursing agents, and registrars;
- expenses of valuing shares of each fund;
- printing and mailing costs other than those expressly assumed by the
Adviser;
- auditing, accounting, and legal expenses;
- expenses incurred in connection with the preparation of reports to
shareholders and governmental
agencies;

Page 23
<PAGE> 56

- expenses of shareholder meetings and proxy solicitations;
- insurance expenses;
- all "extraordinary expenses" which may arise, including all losses and
liabilities incurred in connection with litigation proceedings and
claims, and the legal obligations of the Trust to indemnify its
officers, trustees, and agents with respect thereto.

A majority of the Board of Trustees of the Trust and a majority of the
trustees who are not "interested persons" (as defined in the Investment Company
Act of 1940) of any party to the Adviser Contracts, voting separately, shall
determine which expenses shall be characterized as "extraordinary expenses."

In return for the services and facilities furnished by the Adviser
under the Adviser Contracts, the Index Plus Fund, the Mid Cap Index Fund, and
the Small Cap Index Fund each pays the Adviser an advisory fee (the "Advisory
Fee") computed at an annual rate of 0.90% of the first $50 million of the
average daily net asset value of such fund, 0.70% of such asset value in excess
of $50 million and less than $100 million, and 0.60% of such asset value in
excess of $100 million. The rate of such Advisory Fee is higher than that paid
by many other funds for advisory services.

If total expenses of any fund for any fiscal year (including the
Adviser's compensation, but exclusive of taxes, interest, brokerage commissions,
and any "extraordinary expenses" determined as above described) exceed the
specified percentage of such fund's average daily net asset value for such year,
the Adviser Contracts require the Adviser to bear all such excess expenses up to
the amount of the Advisory Fee. The applicable expense limitation percentage for
each fund are: 1.50% of the Index Plus Fund's average daily net asset value;
1.50% of the Mid Cap Index Fund's average daily net asset value; and 2.00% of
the Small Cap Index Fund's average daily net asset value. Each month the
Advisory Fee is determined and each fund's expenses are projected. If such
fund's projected expenses are in excess of the above-stated expense limitations,
the Advisory Fee paid to the Adviser will be reduced by the amount of the excess
expenses, subject to an annual adjustment; provided, however, that the aggregate
annual reduction from the Adviser to each fund shall not exceed the aggregate
Advisory Fee paid by such fund to the Adviser for such year.

The following table shows the Advisory Fees earned by the Adviser for
providing services to the funds. It also shows the amount of the fees waived by
the Adviser for the years ended December 31, 1996, 1995, and 1994.

Page 24
<PAGE> 57

<TABLE>
<CAPTION>
- --------------------- ------------------------- ----------------------------- ---------------------------------
FEE AND WAIVER INDEX PLUS FUND MID CAP INDEX FUND SMALL CAP INDEX FUND
- --------------------- ------------------------- ----------------------------- ---------------------------------

<C> <C> <C> <C>
1996 Fee Earned $1,272,990 $54,410 $91,823
1996 Fee Waived 0 54,410 91,823
1996 Fee Paid $1,272,990 $ 0 $ 0

- --------------------- ------------------------- ----------------------------- ---------------------------------

1995 Fee Earned $1,246,576 $50,766 $85,502
1995 Fee Waived 0 50,766 $85,502
1995 Fee Paid $1,246,576 $ 0 $ 0

- --------------------- ------------------------- ----------------------------- ---------------------------------

1994 Fee Earned $1,273,842 $84,778 $114,449
1994 Fee Waived 0 81,284 15,135
------ ------
1994 Fee Paid $1,273,842 $ 3,494 $ 99,314

- --------------------- ------------------------- ----------------------------- ---------------------------------
</TABLE>

The Adviser Contracts further provide that in the absence of willful
misfeasance, bad faith, gross negligence, or reckless disregard of its duties or
obligations thereunder, the Adviser is not liable to the Trust or any of its
shareholders for any act or omission by the Adviser. The Adviser Contracts
contemplate that the Adviser may act as an investment manager or adviser for
others.

The Adviser Contracts may be amended at any time by the mutual consent
of the parties thereto, provided that such consent on the part of the Trust
shall have been approved by the vote of a majority of the Trust's Board of
Trustees, including the vote cast in person by a majority of the trustees who
are not "interested persons" of any party to the Adviser Contracts (as defined
in the Investment Company Act of 1940), and by vote of the shareholders of the
applicable fund.

The Adviser Contracts may be terminated, upon 60 days' written notice
(which notice may be waived) at any time without penalty (i) by the Board of
Trustees of the Trust; (ii) by the vote of a majority of the outstanding voting
securities of the applicable fund; or, (iii) by the Adviser. Each Adviser
Contract terminates automatically in the event of its assignment (as that term
is defined in the Investment Company Act of 1940) by the Adviser.

The Adviser Contracts continue in effect until December 31, 1997, and
thereafter, provided that its continuance for the funds for each renewal year is
specifically approved in advance (i) by the Board of Trustees of the Trust or by
vote of a majority of the outstanding voting securities of the funds, and (ii)
by vote of a majority of the trustees who are not parties to the Adviser
Contracts or "interested persons" of any party to the Adviser Contracts (other
than as Trustees of the Trust) by votes cast in person at a meeting specifically
called for such purposes.

CUSTODIAN

Star Bank, 425 Walnut Street, Cincinnati, OH 45202, acts as custodian
of the Trust's assets (the "Custodian"). The Custodian has no part in
determining the investment policies of any fund or which securities are to be
purchased or sold by any fund.

Page 25
<PAGE> 58

SHAREHOLDER SERVICING, TRANSFER, DIVIDEND DISBURSING, AND FINANCIAL SERVICING
AGENT

The Adviser is the Trust's Shareholder Servicing, Transfer, Dividend
Disbursing, and Financial Servicing Agent (the "Servicing Agent"). The Adviser's
mailing address for its activities as Servicing Agent is The Gateway Trust, 400
TechneCenter Drive, Suite 220, Milford, OH 45150. As Transfer Agent for the
Trust, the Servicing Agent's general duties include transferring shares,
processing applications for new accounts, depositing the payments for the
purchase of fund shares with the Custodian, and notifying the Trust and
Custodian of such deposits. The Servicing Agent opens and maintains a bookshare
account for each shareholder as set forth in the subscription application,
maintains records of each shareholder account, and sends confirmation of shares
purchased to each shareholder. The Servicing Agent also receives and processes
requests by shareholders for redemption of shares. If the shareholder request
complies with the redemption standards of the Trust, the Servicing Agent will
direct the Custodian to pay the appropriate redemption price. If the redemption
request does not comply with such standards, the Servicing Agent will promptly
notify the shareholder of the reasons for rejecting the redemption request.

As the Dividend Disbursing Agent for the Trust, the Servicing Agent,
upon notification of the declaration of a dividend or distribution, will
determine the total number of shares issued and outstanding as of the record
date for the dividend or distribution and the amount of cash required to satisfy
such dividend or distribution. The Servicing Agent will prepare and mail to
shareholders dividend checks in the amounts to which they are entitled. In the
case of shareholders participating in the dividend reinvestment plan, the
Servicing Agent will make appropriate credits to their bookshare accounts.
Shareholders will be notified by the Servicing Agent of any dividends or
distributions to which they are entitled, including any amount of additional
shares purchased with their dividends. In addition, the Servicing Agent will
prepare and file with the Internal Revenue Service and with any state, as
directed by the Trust, returns for reporting dividends and distributions paid by
such fund.

The Servicing Agent, as the Shareholder Servicing Agent, will open and
maintain any plan or program for shareholders in accordance with the terms of
such plans or programs (see "SHAREHOLDER SERVICES" herein). With regard to the
Systematic Withdrawal Program, the Servicing Agent will process such Systematic
Withdrawal Program orders as are duly executed by shareholders and will direct
appropriate payments to be made by the Custodian to the shareholder. In
addition, the Servicing Agent will process such accumulation plans, group
programs, and other plans or programs for investing shares as provided in the
funds' current prospectuses.

Each fund reimburses the Servicing Agent for printing, mailing, and
compliance expenses associated with providing its services. In addition, each
fund reimburses the Servicing Agent for other processing expenses, as a minimum
rate of $2,500 per month, up to a maximum annual rate of 0.20% of each fund's
average net assets. Each fund also pays the Servicing Agent a monthly fee of
$4,000 per month for the financial and administrative services it provides. For
the year ended December 31, 1996, the Adviser earned $636,835 in its capacity as
Servicing Agent to all four funds of the Trust.

Page 26
<PAGE> 59

BROKERAGE
---------

Transactions on stock and option exchanges involve the payment of
negotiated brokerage commissions. In the case of securities traded in the
over-the-counter market, there is generally no stated commission but the price
usually includes an undisclosed commission or mark-up.

In effecting portfolio transactions for each fund, the Adviser is
obligated to seek best execution, which is to execute a fund's transaction where
the most favorable combination of price and execution services are available
("best execution"), except to the extent that it may be permitted to pay higher
brokerage commissions for brokerage and research services as described below. In
seeking best execution, the Adviser, in each fund's best interest, considers all
relevant factors, including:

- price;
- the size of the transaction;
- the nature of the market for the security;
- the amount of commission;
- the timing of the transaction taking into account market prices and
trends;
- the reputation, experience, and financial stability of the
broker-dealer involved;
- the quality of service rendered by the broker-dealer in other
transactions.

Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to seeking best execution and such other
factors as the Trustees may determine, the Adviser may consider sales of shares
of a fund as a factor in the selection of broker-dealers to execute securities
transactions for such fund. Closing option transactions are usually effected
through the same broker-dealer that executed the opening transaction.

The Trust has no obligation to deal with any broker or dealer in the
execution of its transactions. However, it is contemplated that Alex. Brown &
Sons Incorporated, or any of its affiliates ("Alex. Brown"), in its capacity as
a registered broker-dealer, will effect securities transactions which are
executed on a national securities exchange and over-the-counter transactions
conducted on an agency basis. Such transactions will be executed at competitive
commission rates.

Transactions in the over-the-counter market can be placed directly with
market makers who act as principals for their own account and include mark-ups
in the prices charged for over-the-counter securities. Transactions in the
over-the-counter market can also be placed with broker-dealers who act as agents
and charge brokerage commissions for effecting over-the-counter transactions.
The Trust may place its over-the-counter transactions either directly with
principal market makers, or with broker-dealers if that is consistent with the
Adviser's obligation to obtain best qualitative execution. Under the Investment
Company Act of 1940, persons affiliated with an affiliate of the Adviser (such
as Alex. Brown) may be prohibited from dealing with the Trust as a principal in
the purchase and sale of securities. Therefore, Alex. Brown will not serve as
the Trust's dealer in connection with over-the-counter transactions. However,
Alex. Brown may serve as the Trust's broker in over-the counter transactions
conducted on an agency basis and will receive brokerage commissions in
connection with such transactions.

Page 27
<PAGE> 60

The Trust will not effect any brokerage transactions in its portfolio
securities with Alex. Brown if such transactions would be unfair or unreasonable
to the Trust's shareholders, and the commissions will be paid solely for the
execution of trades and not for any other services. In determining the
commissions to be paid to Alex. Brown, it is the policy of the Trust that such
commissions will, in the judgment of the Trust's Board of Trustees, be (a) at
least as favorable to the Trust as those which would be charged by other
qualified brokers having comparable execution capability, and (b) at least as
favorable to the Trust as commissions contemporaneously charged by Alex. Brown
on comparable transactions for its most favored unaffiliated customers, except
for customers of Alex. Brown considered by a majority of the Trust's
disinterested Trustees not to be comparable to the Trust. The disinterested
trustees from time to time review, among other things, information relating to
the commissions charged by Alex. Brown to a fund and its other customers, and
other information concerning the commissions charged by other qualified brokers.
It is not contemplated that brokerage transactions will be effected exclusively
through Alex. Brown. The Adviser may from time to time use other brokers,
including brokers that provide research services as discussed below.

While the Adviser does not intend to limit the placement of orders to
any particular broker or dealer, the Adviser generally gives preference to those
brokers or dealers who are believed to give best execution at the most favorable
prices and who also provide research, statistical, or other services to the
Adviser and/or the Trust. Commissions charged by brokers who provide these
services may be higher than commissions charged by those who do not provide
them. Higher commissions are paid only if the Adviser determines that they are
reasonable in relation to the value of the services provided, and it has
reported to the Board of Trustees of the Trust on a periodic basis to that
effect. The availability of such services was taken into account in establishing
the Advisory Fee. Specific research services furnished by brokers through whom
the Trust effects securities transactions may be used by the Adviser in
servicing all of its accounts. Similarly, specific research services furnished
by brokers who execute transactions for other Adviser clients may be used by the
Adviser for the benefit of the Trust.

The Adviser has an agreement with Bridge Information Systems, Inc.
("Bridge") to direct brokerage transactions to Bridge because of research
services provided to the Adviser. For the fiscal year ended December 31, 1996,
the Trust paid brokerage commissions of $192,607 for effecting brokerage
transactions totaling $95,794,373. The Adviser may from time to time enter into
similar agreements with other brokers.

[GRAPHIC]

The Adviser Contracts provide that, subject to such policies as the
Trustees may determine, the Adviser may cause a fund to pay a broker-dealer who
provides brokerage and research services to the Adviser an amount of commission
for effecting a securities transaction for such fund in excess of the amount of
commission which another broker-dealer would have charged for effecting that
transaction. As provided in Section 28(e) of the Securities Exchange Act of
1934, "brokerage and research services" include:

Page 28
<PAGE> 61

- advice as to the value of securities, the advisability of investing in,
purchasing, or selling securities, and the availability of securities,
or purchasers, or sellers of securities;

- furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and
performance of accounts;

- effecting securities transactions and performing functions incidental
thereto (such as clearance and settlement);

- services that provide lawful and appropriate assistance to the Adviser
in the performance of its investment decision-making responsibilities.

The following table shows the brokerage commissions paid by the funds
in the years ended December 31, 1996, 1995, and 1994.

<TABLE>
<CAPTION>
- --------------------------- -------------------------- -------------------------- ---------------------------
NAME OF FUND 1996 COMMISSIONS 1995 COMMISSIONS 1994 COMMISSIONS
- --------------------------- -------------------------- -------------------------- ---------------------------

<S> <C> <C> <C>
Index Plus Fund $ 274,816 $ 128,373 $76,077
Mid Cap Index Fund $ 3,909 $ 6,982 $ 9,121
Small Cap Index Fund $ 9,766 $ 12,492 $24,677
- --------------------------- -------------------------- -------------------------- ---------------------------
</TABLE>

The increased levels of commissions paid by the Index Plus Fund from
1994 to 1995 are attributable primarily to the resumption of the use of
exchange-traded options by the fund in 1995. During 1994, the fund used
primarily over-the-counter option contracts which are traded on a principal
basis with no direct commission charges.

The increased levels of commissions paid by the Index Fund from 1995 to
1996 are attributable to: increased levels of shareholder activity resulting in
higher portfolio turnover; and to increased use of put options to hedge the
portfolio.

ADDITIONAL TAX MATTERS
----------------------

The tax discussion set forth below and in the Combined Prospectus is
included for general information only. Prospective investors should consult
their own tax advisers concerning the tax consequences of an investment in a
fund.

FEDERAL TAX MATTERS

Each of the funds is treated as a separate association taxable as a
corporation. The following information, therefore, applies to each fund
separately unless otherwise specifically stated.

Except as noted below, each fund has met, and each of the funds in the
future intends to meet, the requirements of the Internal Revenue Code,
applicable to regulated investment companies so as to qualify for the special
tax treatment afforded to such companies. Under Subchapter M of the Code, a
regulated investment company is not subject to federal income tax on the portion
of its net investment income and net realized capital gains which it distributes
currently to its shareholders, provided that certain distribution requirements
are met, including the requirement that at least 90% of the sum of its net
investment income and net short-term capital gains in any fiscal year is so
distributed. In addition to this distribution requirement, two

Page 29
<PAGE> 62

of the principal tests which each fund must meet in each fiscal year in order to
qualify as a regulated investment company are the "90% Test" and the "30% Test."
The 90% Test requires that at least 90% of a fund's gross income must be derived
from dividends, interest, and gains from the sale or other disposition of
securities, including gains from options. The 30% Test requires that no more
than 30% of a fund's gross income be derived from the sale or other disposition
of securities held less than three months. The 30% Test limits each fund's
ability to deal with investments held, or options outstanding, less than three
months. In 1987, the Index Plus Fund failed to satisfy the 30% Test as a result
of an unusual volume of short-term gains realized by the fund following the
stock market drop in October 1987. As a consequence, the Fund failed to qualify
under Subchapter M and became subject to federal income tax and state franchise
tax for 1987. The Index Plus Fund has qualified under Subchapter M each year
since 1987.

Gains realized from transactions on put and call options (other than
options on securities indexes) generally will be long term or short term,
depending on the nature of the option transaction and on the length of time the
option is owned by the fund.

Long-term capital gain distributions (i.e., the excess of any net
long-term capital gains over net short-term capital losses), after utilization
of available capital loss carryforwards, are taxable as long-term capital gains
whether received in cash or additional shares, regardless of how long the
shareholder has held his shares, and are not eligible for the dividends-received
deduction for corporations. Distributions of long-term capital gains which are
offset by available loss carryforwards, however, may be taxable as ordinary
income.

Distributions on shares of any fund received shortly after their
purchase, although substantially in effect a return of capital, are subject to
federal income taxes.

The tax status of distributions made by each fund during the fiscal
year will be sent to shareholders shortly after the end of such year. Each
prospective investor is advised to consult his or her own tax adviser.
Distributions of net investment income are taxable as ordinary income subject to
allowable exclusions and deductions. Distributions of capital gains are taxable
at either ordinary or long-term capital gains rates, as appropriate, except that
all such gains are normally taxable as ordinary income to the extent they are
offset by capital loss carryforwards.

STATE AND LOCAL TAX ASPECTS

The laws of several state and local taxing authorities vary with
respect to taxation, and each prospective investor is advised to consult his or
her own tax adviser as to the status of his or her shares and distributions in
respect of those shares under state and local tax laws.

TRUSTEES AND OFFICERS OF THE TRUST
----------------------------------

The Trustees and officers of the Trust, together with information as to
their positions with the Trust and its predecessor, Gateway Option Income Fund,
Inc. (the "Company") and their principal occupations during at least the past
five years, are listed below.

Page 30
<PAGE> 63

*Walter Gene Sall, 400 TechneCenter Drive, Suite 220, Milford, OH
45150; Chairman and Trustee of the Trust; Chairman of the Adviser; various
senior management positions and offices held with the Trust, the Company, and
the Adviser since 1977. Age 52.

*J. Patrick Rogers, 400 TechneCenter Drive, Suite 220, Milford, OH
45150; President of the Trust since 1997; President of the Adviser since 1995;
portfolio manager of the funds since 1997; co-portfolio manager of the funds
from 1995 to 1997; various senior management positions and offices held with the
Trust and the Adviser since 1989. Age 33.

James M. Anderson, Children's Hospital Medical Center, 3333 Burnet
Avenue, Cincinnati, OH 45229; Trustee of the Trust since April 1997; Children's
Hospital Medical Center, President and Chief Executive Officer since November
1996, Chairman of the Board of Trustees from 1992 through 1996, and Trustee
since 1979; Taft Stettinius & Hollister, Partner from 1992 to November 1996;
Access Corporation, Secretary from 1985 to 1996, and Consultant since 1996;
Cincinnati Stock Exchange, Trustee since 1978; Command System Incorporated,
Director and Secretary since 1988; River City Insurance Limited, Director since
1991. Age 56.

Stefen F. Brueckner, Anthem Companies, Inc., 120 Monument Circle, Mail
Location #M4C, Indianapolis, IN 46204; Trustee of the Trust since October 1992;
Director, President, and Chief Executive Officer, Anthem Companies, Inc. since
1995. Prior thereto, Director and President of Community Mutual Insurance
Company (health insurer) since 1991, and various management positions since
1986. Director of Anthem Health and Life Insurance Company, Anthem Life
Insurance Company, and various other affiliates and subsidiaries. Age 47.

Kenneth A. Drucker, Sequa Corp., 200 Park Avenue, New York, NY 10166;
Director of the Company from January 1984 to May 1986; Trustee of the Trust
since April 1986; Vice President and Treasurer, Sequa Corporation (gas turbine
and industrial equipment) since November 1987. Prior thereto, Senior Vice
President and Treasurer, JWT Group, Inc. (advertising, public update relations,
and market research). Age 51.

Beverly S. Gordon, 8591 Woodbrier Drive, Sarasota, FL 34238; Trustee of
the Trust since September 1988; arbitrator, National Association of Securities
Dealers, Inc., since January 1992; Vice President, Marketing and Communications,
Coffee, Sugar and Cocoa Exchange from January 1989 to December 1991; Executive
Director, National Institutional Options and Futures Society, March 1988 to
December 1988; prior thereto, Vice President, Institutional Marketing, Chicago
Board Options Exchange. Age 66.

R. S. (Dick) Harrison, 4040 Mt. Carmel Road, Cincinnati, OH 45244;
Director of the Company from 1977 to 1982; Trustee of the Trust since April
1996; Director/Chairman of the Board, Baldwin Piano & Organ Company from 1994 to
1997; Chairman of the Board/CEO, Baldwin Piano & Organ Company from 1983 to
1994. Prior thereto, various management positions with Baldwin Piano & Organ
Company, Cincinnati, OH. Director of Sencorp and Anderson Bank of Cincinnati, OH
and Trustee of Kenyon College. Age 65.

William Harding Schneebeck, 251 Indian Harbor Road, Vero Beach, FL
32963; Director of the Company from September 1977 to May 1986; Trustee of the
Trust since April 1986; retired, formerly Chairman of Midwestern Fidelity Corp.
Age 68.

Page 31
<PAGE> 64

*Geoffrey Keenan, 400 TechneCenter Drive, Suite 220, Milford, OH 45150;
Vice President of the Trust since April 1996; Chief Operating Officer, Gateway
Investment Advisers, L.P. since 1995; Executive Vice President and Chief
Operating Officer, Gateway Investment Advisers, Inc. since 1995; Vice President,
Gateway Investment Advisers, Inc. from 1991 to 1995. Age 38.

*Paul R. Stewart, 400 TechneCenter Drive, Suite 220, Milford, OH 45150;
Treasurer of the Trust since October 1995; Chief Financial Officer of the
Adviser since 1996, Controller of the Adviser from October 1995 to December
1996, Audit Manager and Senior Manager, Price Waterhouse from September 1992 to
1995 and from August 1988 to August 1991; accountant for Lexmark International
from August 1991 to September 1992. Age 31.

*Donna M. Squeri, 400 TechneCenter Drive, Suite 220, Milford, OH 45150;
Secretary of the Trust since October 1995; Secretary and General Counsel of the
Adviser since September 1995; in-house counsel of Bartlett & Co., a registered
investment adviser, from October 1984 to September 1993. Age 37.

*Messrs. Sall, Rogers, Keenan, and Stewart and Ms. Squeri are
affiliated persons of the Trust and the Adviser as defined by the Investment
Company Act of 1940. Mr. Sall is an "interested person" of the Trust as defined
by the Investment Company Act of 1940.

Messrs. Sall, Rogers, Keenan, and Stewart and Ms. Squeri, each of whom
is employed by the Adviser, receive no remuneration from the Trust. Each Trustee
of the Trust other than Mr. Sall receives fees as follows: (a) an annual fee of
$3,000, payable in equal quarterly installments for services during each fiscal
quarter; (b) a $500 base fee plus $100 per fund for each regular or special
meeting of the Board of Trustees attended; and, (c) $200 per fund ($1,000 per
fund for the Chairman) for each Audit and Contract Review Committee meeting
attended. The Trust also reimburses each Trustee for any reasonable and
necessary travel expenses incurred in connection with attendance at such
meetings. In addition, Trustees may receive attendance fees for service on other
committees.

Page 32
<PAGE> 65

The following table provides information about the compensation
received by each Trustee from the Trust for the year ended December 31, 1996.

<TABLE>
<CAPTION>
- ---------------------- ----------------------------------------------
TOTAL COMPENSATION
NAME OF TRUSTEE FROM TRUST
- ---------------------- ----------------------------------------------

<S> <C>
Stefen F. Brueckner $ 8,200.00
Kenneth A. Drucker $ 9,800.00
Beverly S. Gordon $ 6,600.00
R. S. Harrison $ 3,300.00
Walter G. Sall $ 0.00
William H. Schneebeck $ 9,800.00
- ---------------------- ----------------------------------------------
</TABLE>

INDEPENDENT PUBLIC ACCOUNTANTS AND FINANCIAL STATEMENTS
-------------------------------------------------------

Arthur Andersen LLP, 425 Walnut Street, Cincinnati, OH 45202, serves as
independent public accountants of the Trust. Arthur Andersen LLP performs an
annual audit of each fund's financial statements, prepares each fund's tax
returns, and provides financial, tax, and accounting consulting services as
requested.

The financial statements and independent auditor's report required to
be included in this SAI are incorporated herein by this reference to the Trust's
Annual Report to Shareholders for the fiscal year ended December 31, 1996.

PRINCIPAL HOLDERS OF FUND SHARES
--------------------------------

INDEX PLUS FUND

As of April 26, 1997, the Index Plus Fund had 10,905,875.572 shares
outstanding. As of such date, each of the following persons or groups was known
by Trust management to be the record and/or beneficial owner (as defined below)
of the indicated amounts of the Fund's outstanding shares.

<TABLE>
<CAPTION>
- ------------------------------------------------------------- ------------------------- ----------------------------
NUMBER OF
NAME AND ADDRESS SHARES PERCENT OF CLASS
- ------------------------------------------------------------- ------------------------- ----------------------------

<S> <C> <C>
Alex. Brown & Sons, Inc. Mutual Fund Dept. 2,376,757.650 21.79%
Attention: Tom Ernst
Mutual Fund Department
P. O. Box 1346
Baltimore, MD 21203

Charles Schwab and Company, Inc. 1,397,575.535 12.81%
Reinvest Account Special Custody Account for
</TABLE>

Page 33
<PAGE> 66

<TABLE>
<S> <C> <C>
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104

Trustees and officer of the Trust as a group 147,020.035 1.35%

Adviser officers and directors as a group 29,196.694 Less than 1%
- ------------------------------------------------------------- ------------------------- ----------------------------
</TABLE>

MID CAP INDEX FUND

As of April 26, 1997, the Mid Cap Index Fund had 506,301.008 shares
outstanding. As of such date, each of the following persons or groups was known
by Trust management to be the record and/or beneficial owner (as defined below)
of the indicated amounts of the Fund's outstanding shares.

<TABLE>
<CAPTION>
- -------------------------------------------------------------- -------------------------- --------------------------
NAME AND ADDRESS OF OWNER NUMBER OF SHARES PERCENT OF CLASS
- -------------------------------------------------------------- -------------------------- --------------------------

<S> <C> <C>
Andrew Wyeth 84,338.542 16.66%
Chadds Ford, PA 19317

Betsy Wyeth Growth 54,962.537 10.86%
Chadds Ford, PA 19317

Betsy Wyeth 54,732.766 10.81%
Chadds Ford, PA 19317

Trustees and officers of the Trust as a group 38,457.040 7.60%

Adviser officers and directors as a group 4,500.908 Less than 1%
- -------------------------------------------------------------- -------------------------- --------------------------
</TABLE>

Page 34
<PAGE> 67

SMALL CAP INDEX FUND

As of April 26, 1997, the Small Cap Index Fund had 900,395.997 shares
outstanding. As of such date, each of the following persons or groups was known
by Trust management to be the record and/or beneficial owner (as defined below)
of the indicated amounts of the Fund's outstanding shares.

<S> <C> <C>
Andrew Wyeth 151,149.251 16.79%
Chadds Ford, PA 19317

Betsy Wyeth 98,351.583 10.92%
Chadds Ford, PA 19317

Betsy Wyeth Growth 73,927.758 8.21%
Chadds Ford, PA 19317

Charles Schwab and Company, Inc. 45,154.762 5.01%
Reinvest Account Special Custody for
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104

Trustees and officers of the Trust as a group 24,528.069 2.72%

Adviser officers and directors as a group 5,918.604 Less than 1%
- -------------------------------------------------------------- -------------------------- --------------------------
</TABLE>

The SEC has defined "beneficial owner" of a security to include any
person who has voting power or investment power with respect to any such
security, any person who shares voting power or investment power with respect to
any such security, or any person who has the right to acquire beneficial
ownership of any such security within 60 days.

SHARES HELD BY ADVISER

As of February 4, 1997, the Adviser held in a fiduciary capacity the
indicated amounts of the outstanding shares of each fund. The Adviser has
investment and voting power over all shares held by it in a fiduciary capacity.

<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------ --------------------------------------
NAME OF FUND NUMBER OF SHARES PERCENTAGE OF SHARES
- ------------------------------------ ------------------------------------ --------------------------------------

<S> <C> <C>
Index Plus Fund 509,624 4.65%
Mid Cap Index Fund 282,539 58.55%
Small Cap Index Fund 449,580 50.21%
- ------------------------------------ ------------------------------------ --------------------------------------
</TABLE>

Page 35
<PAGE> 68

SCHEDULE A
----------

(STOCKS INCLUDED IN THE S&P 100 INDEX)

<TABLE>
<S> <C> <C>
AMP, Inc. Delta Air Lines, Inc. Merck & Company
AT&T Digital Equipment Corp. Merrill Lynch & Co.
Allegheny Teledyne Dow Chemical Company Minnesota Mining
Aluminum Company of America DuPont E.I. de Nemours and Manufacturing
American Electric Power Co. Eastman Kodak Company Mobil Corp.
American Express Entergy Corp. Monsanto Company
American General Corp. Exxon Corp. National Semiconductor Corp.
American International Group, Inc. Federal Express Norfolk Southern Corp.
Ameritech First Chicago NBD Corp. Northern Telecom Ltd.
Amoco Corp. Fluor Corp. Nynex Corporation
Atlantic Richfield Co. Ford Motor Company Occidental Petroleum Corp.
Avon Products, Inc. General Dynamics Corp. Oracle Corporation
Baker Hughes, Inc. General Electric Company PepsiCo, Inc.
BankAmerica Corp. General Motors Corporation Pharmacia & Upjohn
Baxter International Great Western Financial Corp. Polaroid Corp.
Bell Atlantic Corp. Halliburton Co. Ralston Purina Co.
Bethlehem Steel Corporation Harrah's Entertainment, Inc. Raytheon Company
Black & Decker Harris Corp. Rockwell International Corp.
Manufacturing Corp. Heinz (H. J.) Co. Schlumberger Ltd.
Boeing Company Hewlett Packard Company Sears, Roebuck & Company
Boise Cascade Corp. Homestake Mining Corp. Southern Co.
Bristol-Myers Squibb Company Honeywell, Inc. Tandy Corp.
Brunswick Corp. ITT Hartford Group Inc. Tekronix, Inc.
Burlington Northern, Inc. Intel Corporation Texas Instruments, Inc.
CIGNA Corp. International Business The Limited, Inc.
Ceridian Corporation Machines Corp. Toys R Us
Champion International Corp. International Flavors & UNICOM Corp.
Chrysler Corporation Fragrances, Inc. Unisys Corp.
Cisco Systems Inc. International Paper United Technologies Corp.
Citicorp Johnson & Johnson Wal-Mart Stores, Inc.
Coastal Corp. K-Mart Corp. Walt Disney Productions
Coca-Cola Co. MCI Communications Corp. Weyerhauser Co.
Colgate Palmolive Company Mallinckrodt, Inc. Williams Companies
Columbia Healthcare Corp. May Department Stores Co. Xerox Corp.
Computer Sciences Corp. McDonald's Corp.
</TABLE>

Page 36
<PAGE> 69

SCHEDULE B
----------

(STOCKS INCLUDED IN THE S&P MIDCAP 400 INDEX)

<TABLE>
<S> <C> <C>
360 Communications Company Black Hills Corporation Cypress Semiconductor
AC Nielsen Corp. Bob Evans Farms, Inc. Corporation
ADC Telecommunications, Inc. Bowater, Inc. Cytec Industries Inc.
AES Corp. Brinker International, Inc. Danaher Corp.
AFLAC Incorporated Brooklyn Union Gas Company Datascope Corporation
AGL Resources Inc. Brush Wellman Inc. Dauphin Deposit Corporation
APL Ltd. Buffets, Inc. Dean Foods Company
ASA HOLDINGS, INC. Burlington Industries, Inc. Delmarva Power & Light Company
AST Research Inc. CMS Energy Corporation Dentsply International, Inc.
Acuson Corporation COMSAT Dexter Corp.
Adobe Systems, Inc. COVANCE INC. Diagnostic Products Corporation
Advanced Technology CPI Corporation Dial Corp.
Laboratories, Inc. Cabot Corporation Diebold Incorporated
Airborne Freight Corporation Cadence Design Systems, Inc. Dole Food Company, Inc.
Airgas Inc. CalMat Company Dollar General Corporation
Alaska Air Group, Inc. Calgon Carbon Corp. Donaldson Company, Inc.
Albany International Corp. Class A California Energy Company Dreyer's Grand Ice Cream, Inc.
Albemarle Corp. Callaway Golf Co. Duriron Company, Inc.
Alexander & Baldwin Company Cardinal Health, Inc. Duty Free International, Inc.
Aliant Communications Inc. Carlisle Companies Inc. ENSCO International Incorporated
Allegheny Power System, Inc. Carpenter Technology Corporation Edwards (A.G.), Inc.
Allegiance Corp. Carter-Wallace, Inc. El Paso Natural Gas Company
Altera Corporation Centocor, Inc. Electronic Arts Inc.
Alumax, Inc. Central Fidelity Banks, Inc. Equifax Inc.
America Online Inc. Central Louisiana Electric Ethyl Corp.
American Financial Group, Inc. Company, Inc. Exabyte Corporation
American Power Conversion Corp. Central Maine Power Company FIserv, Inc.
American Water Works Co., Inc. Century Telephone Family Dollar Stores, Inc.
Ametek, Inc. Enterprises, Inc. Fastenal Company
Anadarko Petroleum Corp. Chesapeake Corporation Federal Signal Corporation
Analog Devices, Inc. Chiron Corporation Federal-Mogul Corporation
Ann Taylor Stores Corp. Chris-Craft Industries, Inc. Ferro Corporation
Apache Corporation Church & Dwight Company, Inc. Fingerhut Companies, Inc.
Apria Healthcare Group Inc. Cintas Corporation First Brands Corporation
Arnold Industries, Inc. Circus Circus Enterprises, Inc. First Security Corporation
Arrow Electronics, Inc. Cirrus Logic, Inc. First Tennessee National Corp.
Arvin Industries, Inc. City National Corporation First Virginia Banks, Inc.
Atlantic Energy Inc. Claire's Stores, Inc. First of America Bank Corporation
Atmel Corp. Clayton Homes, Inc. Firstar Corp.
Avnet, Inc. Cleveland-Cliffs, Inc. Florida Progress Corporation
BJ Services Company Coca-Cola Enterprises, Inc. Flowers Industries, Inc.
BMC Software, Inc. Comdisco, Inc. Forest Laboratories, Inc.
Banta Corp. Compuware Corp. Foundation Health Systems Inc.
Bear Stearns Companies, Inc. Consolidated Freightways Inc. Franklin Resources, Inc.
Beckman Instruments, Inc. Consolidated Papers, Inc. Fred Meyer Inc.
Bed Bath and Beyond Consolidated Stores Corp. Fuller (H. B.) Company
Belo (A. H.) Corporation Class A Cracker Barrel Old Country GATX Corporation
Bergen Brunswig Corporation Store, Inc. GTECH Holdings
Best Buy Company, Inc. Crestar Financial Corporation GenCorp, Inc.
Betzdearborn Inc. Crompton & Knowles Genzyme Corporation
Biogen, Inc. Georgia Gulf Corp.
</TABLE>

Page 37
<PAGE> 70

<TABLE>
<S> <C> <C>
Gibson Greetings, Inc. Kohl's Corp. New England Electric System
Glatfelter (P. H.) Co. LG&E Energy Corp. New York State Electric &
Global Marine, Inc. Laboratory Corp. of America Gas Corp.
Golden Books Family Entertainment, Inc. Lancaster Colony Corporation Newport News Shipbuilding, Inc.
Goulds Pumps Incorporated Lance, Inc. Nine West Group, Inc.
Granite Construction Inc. Lands' End, Inc. Noble Affiliates, Inc.
HON Industries, Inc. Lawson Products, Inc. Nordson Corporation
Hancock Fabrics, Inc. Lawter International, Inc. Northeast Utilities
Hanna (M. A.) Company Lee Enterprises, Incorporated Northern Trust Corporation
Hannaford Brothers Company Leggett & Platt, Inc. NovaCare, Inc.
Harley Davidson, Inc. Linear Technology Corporation OEA, Inc.
Harsco Corp. Litton Industries, Inc. Octel Communications Corp.
Hartford Steam Boiler Inspection Lone Star Steakhouse Office Depot, Inc.
and Insurance Co. Longview Fibre Company OfficeMax Inc.
Hawaiian Electric Industries, Inc. Lubrizol Corporation Ogden Corp.
Health Care & Retirement Lukens Inc. Oklahoma Energy Corp.
Healthcare COMPARE Corp. Lyondell Petrochemical Company Olin Corporation
Healthsource, Inc. MAPCO Olsten Corp.
Heilig-Meyers Company MAXXAM Inc. Omnicom Group Inc.
Herman Miller, Inc. MCN Energy Group Inc. Oregon Steel Mills, Inc.
Hibernia Corporation MacFrugal's Bargains- Outback Steakhouse, Inc.
Horizon CMS Healthcare Corp. Closeouts, Inc. Overseas Shipholding Group, Inc.
Hormel Foods Corporation MagneTek, Inc. Oxford Health Plans Inc
Houghton Mifflin Company Manpower Inc. PHH Corporation
Hubbell Inc. Mark IV Industries, Inc. PMI Group
Hunt (J. B.) Transport Marshall & Ilsley Corporation PacifiCare Health Systems, Inc.
Services, Inc. Maxim Integrated Products Pacific Century Financial Corp.
IBP, Inc. McCormick & Company, Inc. Paine Webber Group, Inc.
IMC Global, Inc. McKesson Corp. Parker & Parsley Petroleum
IPALCO Enterprises, Inc. Medaphis Corp. Parker Drilling Company
IVAX Corporation Media General, Inc. Paychex, Inc.
Idaho Power Company Mentor Graphics Corporation Payless ShoeSource, Inc.
Illinois Central Corp. Mercantile Bancorporation, Inc. Pentair, Inc.
Illinova Corp. Mercantile Bankshares Corporation Perrigo Company
Imation Corp. Microwarehouse Inc. Pinnacle West Capital Corporation
Indiana Energy, Inc. MidAmerican Energy Pittston Services Group
Information Resources, Inc. Holdings Company Policy Management Systems Corp.
Informix Corporation Minerals Technologies, Inc. Portland General Corp.
Integrated Device Technology Minnesota Power & Holding Co.
Intelligent Electronics, Inc. Light Company Potomac Electric Power Company
International Dairy Queen, Inc. Mirage Resorts Incorporated Precision Castparts Corporation
International Game Technology Modine Manufacturing Company Progressive Corporation
International Multifoods Corp. Molex Incorporated Promus Hotel Corporation
Interstate Bakeries Corporation Montana Power Company Provident Companies, Inc.
Jacobs Engineering Group Inc. Murphy Oil Corporation Public Service Company
Jones Apparel Group Inc. Mylan Laboratories, Inc. of Colorado
Kansas City Power & NCH Corporation Public Service Company of
Light Company NCR CORP. New Mexico
Kansas City Southern NEXTEL Communications, Inc. Puget Sound Energy Co.
Industries, Inc. NIPSCO Industries, Inc. Quaker State Corporation
Kaydon Corporation Nabors Industries, Inc. Quantum Corporation
Kelly Services, Inc. National Fuel Gas Company Questar Corporation
Kennametal Inc. National Presto Industries, Inc. RPM, Inc.
Keystone International, Inc. Nellcor, Inc. Ranger Oil Limited
Nevada Power Company Rayonier Inc.
</TABLE>

Page 38
<PAGE> 71

<TABLE>
<S> <C> <C>
Regions Financial Corp. State Street Corporation Union Planters Corp.
Revco (D. S.) Inc. Sterling Commerce Unisource Worldwide Inc
Reynolds and Reynolds Company Stewart & Stevenson Services, Inc. Universal Corporation Holding Co.
Rohr Inc. Storage Technology Corporation Universal Foods Corporation
Rollins, Inc. Stratus Computer, Inc. UtiliCorp United Inc.
Ruddick Corporation Structural Dynamics Research Valero Energy Corporation
SCANA Corporation Corporation Value Health, Inc.
Savannah Foods & Industries, Inc. Stryker Corporation Vanguard Cellular Systems, Inc.
Sbarro Incorporated Summit Bancorporation Varco International, Inc.
Scherer (R. P.) Corp. SunAmerica, Inc. Varian Associates, Inc.
Scholastic Corp. Sundstrand Corporation Vencor Inc.
Schulman (A.), Inc. Superior Industries International Verifone, Inc.
Schwab (Charles) Corporation Symantec Corp. Viad Corp.
Seagull Energy Corporation Symbol Technologies, Inc. Viking Office Products
Sealed Air Corporation T. Rowe Price Associates, Inc. Vishay Intertechnology, Inc.
Sensormatic Electronics TCA Cable TV Incorporated Vulcan Materials Co.
Corporation TECO Energy, Inc. WPL Holdings, Inc.
Sequa Corp. Tambrands Inc. Waban Inc.
Sequent Computer Systems, Inc. Tecumseh Products Company Wallace Computer Services, Inc.
Service Merchandise Company Inc. Teleflex Incorporated Warnaco Group, Inc.
Shaw Industries, Inc. Telephone & Data Systems, Inc. Washington Gas Light Company
Smith International, Inc. Teradyne, Inc. Washington Post Company
Smucker (J. M.) Company Thiokol Corporation Watson Pharmaceuticals
Solectron Corp. Tidewater Inc. Watts Industries, Inc.
Sonoco Products Company Tiffany & Co. Wausau Paper Mills Company
Sotheby's Holdings, Inc. Tosco Corporation Weatherford International, Inc.
SouthTrust Corporation Transatlantic Holdings, Inc. Wellman, Inc.
Southdown Incorporated Transocean Offshore Wilmington Trust Corporation
Southern New England Telecommunications Corp. Trinity Industries, Inc. Wisconsin Energy Corporation
Southwestern Public Service Tyson Foods, Inc. Witco Corporation
Company U. S. Robotics Xilinx, Inc.
Standard Register Company USA Waste Services, Inc. York International Corporation
Stanhome Incorporated Ultramar Diamond
Staples, Inc. Shamrock Corp.
Unifi, Inc.
</TABLE>

Page 39
<PAGE> 72

SCHEDULE C
----------

(STOCKS INCLUDED IN THE WILSHIRE SMALL CAP INDEX)

<TABLE>
<S> <C> <C>
20th Century Industries Cephalon Inc. Geotek Communications, Inc.
ACX Technologies, Inc. Cerner Corp Gerber Scientific, Inc.
AK Steel Holding Corporation Charming Shoppes, Inc. Gibson Greetings, Inc.
AMRESCO Inc. Chemed Corporation Giddings & Lewis, Inc.
AST Research Inc. Chesapeake Corporation Gilead Sciences, Inc.
Acclaim Entertainment Chiquita Brands International Glendale Federal Bank
Acuson Corporation Chris-Craft Industries, Inc. Golden Books Family Entertainment, Inc.
Advanced Technology Cincinnati Milacron Inc. Goulds Pumps Incorporated
Laboratories, Inc. City National Corporation Grand Casinos Inc.
Advanced Tissue Sciences Inc. Clarcor Inc. Great Financial Corp.
Airborne Freight Corporation Coast Savings Financial, Inc. HON Industries, Inc.
Alaska Air Group, Inc. Coeur D' Alene Mines Corp. Haemonetics Corporation
Albany International Corp. Class A Collective Bancorp, Inc. Handy and Harman
Alex. Brown & Sons Incorporated Comdisco, Inc. Healthsource, Inc.
Alliance Pharmaceutical Corp. Compass Bancshares Inc. Hecla Mining Company
American Bankers Insurance Computervision Corp Herbalife International Inc.
Group, Inc. Cone Mills Corporation Houghton Mifflin Company
Americredit Corp. Coventry Corp. Hunt (J. B.) Transport
Ametek, Inc. Credence Systems Corp. Services, Inc.
Arnold Industries, Inc. Credit Acceptance Corp. ICN Pharmaceuticals Inc.
Arvin Industries, Inc. Cross (A. T.) Company IES Industries, Inc.
Astoria Financial Corp. Cyrix Corporation Information Resources, Inc.
Aura Systems Inc. DSP Communications Inc. Integon Corporation
Avid Technology Inc. Data General Corporation Integrated Health Services
Aztar Corp. Dauphin Deposit Corporation Intelligent Electronics, Inc.
BJ Services Company Dentsply International, Inc. International Dairy Queen, Inc.
BW/IP, INC. Diagnostic Products Corporation International Multifoods Corp.
Baldor Electric Company Donaldson Company, Inc. Interstate Bakeries Corporation
Ballard Medical Products Dress Barn, Inc. John Alden Financial Corp.
Banta Corp. Dreyer's Grand Ice Cream, Inc. Jones Apparel Group Inc.
Bassett Furniture Industries, Inc. Duty Free International, Inc. Kaman Corporation
Beckman Instruments, Inc. ESS Technology Inc. Kaufman and Broad Home Corp.
Benton Oil and Gas Co. Eagle Hardware & Garden, Inc. Kellwood Company
Bergen Brunswig Corporation Eastern Utilities Associates Kemet Corp.
Birmingham Steel Corporation Echo Bay Mines Ltd. Kennametal Inc.
Blair Corporation Employee Solutions, Inc. Kimball International, Inc.
Block Drug Company Inc. Exabyte Corporation La-Z-Boy Inc.
Brown Group, Inc. FTP Software Inc. Lam Research Corp
Brush Wellman Inc. Federal-Mogul Corporation Lands' End, Inc.
CILCORP Inc. First American Corp. of Tennessee Lattice Semiconductor
Calgon Carbon Corp. First Commerce Corp. of Louisiana Lawson Products, Inc.
Carlisle Companies Inc. Flowers Industries, Inc. Lawter International, Inc.
Carpenter Technology Corporation Forceenergy Inc Lennar Corporation
Catellus Development Corporation Foremost Corporation of America Liberty Corporation
Cato Corporation Fred Meyer Inc. Life Re Corporation
Centex Corporation Fuller (H. B.) Company Lincare Holdings, Inc.
Central Hudson Gas & Gaylord Container Corp. Liposome Company Inc.
Electric Corp. GenCorp, Inc.
</TABLE>

Page 40
<PAGE> 73

<TABLE>
<S> <C> <C>
Long Island Bancorp Profit Recovery Standard Federal Bank
Luby's Cafeterias, Inc. Group International Standard Products Co.
MAXXAM Inc. Public Service Company of Standard Register Company
MDU Resources Group, Inc. New Mexico Stanhome Incorporated
MacFrugal's Bargains- Pulitzer Publishing Co. Station Casinos Inc.
Closeouts, Inc. Pulte Corporation Structural Dynamics
Macromedia Inc. Quaker State Corporation Research Corporation
Magna Group, Inc. Quantum Corporation Summit Technology, Inc.
Marine Drilling Companies Inc. Quarterdeck Corp. Sunshine Mining Company
Medic Computer System Inc. Ralcorp Holdings Inc. Superior Industries International
Mid Atlantic Medical Services Reliance Group Holdings Inc. Symantec Corp.
NAC Re Corp. Riggs National Corp. Symbol Technologies, Inc.
NCH Corporation Rollins Truck Leasing Corp. TCA Cable TV Incorporated
NTL Inc. Rollins, Inc. Teleflex Incorporated
Nabors Industries, Inc. Roosevelt Financial Group Tencor Instruments
Nacco Industries, Inc. Ross Stores, Inc. Tesoro Petroleum Corp.
NetManage Inc. Rowan Companies, Inc. Thiokol Corporation
Network General Corp. Ruby Tuesday Inc Tucson Electric Power Company
New England Business Russ Berrie and Company, Inc. U. S. Long Distance Corp.
Service, Inc. S3, Incorporated UGI Corporation
Noram Energy Corp. SCI Systems Inc.* US Airways Group Inc.
OMI Corporation Savannah Foods & Industries, Inc. United Companies Financial Corp.
Oak Technology Inc. Sbarro Incorporated VLSI Technology, Inc.
Octel Communications Corp. Seagull Energy Corporation Valley National Bancorp
Olympic Financial Ltd. Sequent Computer Systems, Inc. Vanguard Cellular Systems, Inc.
Onbancorp, Inc. Shared Medical Ventritex Inc.
Oneok, Inc. Systems Corporation Verifone, Inc.
Orange & Rockland Utilities, Inc. Shorewood Packaging Corp. Wallace Computer Services, Inc.
Overseas Shipholding Group, Inc. Showboat, Inc. Washington National Corporation
PHH Corporation Sierra Pacific Resources Wausau Paper Mills Company
PSINet Inc. Holding Co. West Company Incorporated
Pegasus Gold Inc. Silicon Valley Group, Inc. Western Digital Corp.
Pentair, Inc. Smith International, Inc. Western National Corp.
Peoples Bank Bridgeport Sotheby's Holdings, Inc. Westpoint Stevens, Inc.
Perrigo Company Southdown Incorporated World Color Press Inc.
Petrolite Corporation Southern Indiana Gas & Xircom Inc.
Pittston Services Group Electric Co. Yellow Corporation
Pixar Southwest Gas Corporation Zenith National Insurance Corp.
Pogo Producing Company Southwestern Energy Company Zurn Industries, Inc.
Pride Petroleum Services Inc. Sovereign Bancorp Inc.
</TABLE>

Page 41
<PAGE> 74

SCHEDULE D
----------

The beta measurements used in the Combined Prospectus were calculated by using
MicroSoft Excel spreadsheets and the statistical function slope available in
MicroSoft Excel. The SLOPE function returns the slope of the linear regression
line through data points in known y's and known x's. The slope is the vertical
distance divided by the horizontal distance between any two points on the line,
which is the rate of change along the regression line.

The equation for beta (slope) is shown below.

Beta equals n(SIGMA)xy - ((SIGMA)x)((SIGMA)y)
---------------------------------
n(SIGMA)x2 - ((SIGMA)x)2

Where
y equals the Fund's monthly total returns in the period
x equals= the Index's monthly total returns in the period

Page 42

<PAGE> 75
PROSPECTUS

May 1, 1997

CINCINNATI FUND

The Cincinnati Fund seeks capital appreciation through investment in
the common stock of companies with an important presence in the Greater
Cincinnati Area. Through the use of a proprietary model, portfolio stocks are
selected on the basis of level of employment and nature of operations in the
Greater Cincinnati Area. Certain industry diversification, liquidity, market
capitalization, and listing requirements are also included in the model.

THE GATEWAY FAMILY OF MUTUAL FUNDS

The Cincinnati Fund (the "Fund") is a series of The Gateway Trust (the
"Trust"). This Prospectus sets forth concisely the information about the Fund
that you should know before investing. You should keep it for future reference.
Additional information has been filed with the Securities and Exchange
Commission (the "SEC") and is included in the Statement of Additional
Information (the "SAI") of the Fund dated May 1, 1997. The SAI is incorporated
herein by reference. You can obtain more information about the Fund or free
copies of the SAI by writing or calling: THE GATEWAY TRUST, P. O. BOX 5211,
CINCINNATI, OH 45201-5211, (800) 354-5525. The SEC maintains a Web Site
(http://www.sec.gov) that contains the SAI, material incorporated by reference,
and other information regarding registrants that file electronically with the
SEC.

<PAGE> 76

Table Of Contents

<TABLE>
<S> <C>
Fees And Expenses................................ The Cincinnati Fund is 100% no-load. There are no sales charges,
12b-1 fees, redemption fees, or annual account charges when you
invest in the Fund.

Financial Highlights............................. This table displays financial information for the Cincinnati Fund.

How To Open An Account........................... New investors can open an account by mail or by telephone.

How To Purchase Additional Shares................ Shares may be purchased by check, by wire transfer, or by automatic
withdrawals from your bank account.

How To Redeem Shares............................. Redemption requests can be made by mail or by telephone.

Additional Shareholder Information............... Additional information about buying and selling shares.

Performance Information &
Explanation Of Terms............................. Total return information and glossary of investment terms.

Dividends And Distributions...................... Investors may reinvest their dividends and distributions at no charge.

How Fund Shares Are Priced....................... The Fund's share price is available 24 hours a day by calling (800)
354-5525.

Portfolio Manager Profile........................ Profile of the portfolio manager.

About The Investment Adviser..................... Gateway Investment Advisers, L.P. provides investment advisory
services to the Fund.

Taxes............................................ Tax information will be reported to you on Form 1099.

Investment Practices And Restrictions............ Investment management practices follow specific guidelines. The Fund
has adopted certain investment restrictions.

General Information/The Gateway Trust............ Additional information on The Gateway Trust and its Trustees.
</TABLE>

<PAGE> 77

Fees And Expenses

The Cincinnati Fund is 100% no-load. You do not pay any sales charges when you
invest in the Cincinnati Fund.

SHAREHOLDER TRANSACTION EXPENSES

The Cincinnati Fund does not charge a fee for purchases, exchanges, or
redemptions. The Fund is 100% no-load.

SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------
Maximum Sales Load on Purchase None
Maximum Sales Load on
Reinvested Dividends None
Deferred Sales Load None
Redemption Fee None
Exchange Fee None

The custodian for the Fund charges $10 for each wire transfer.

FUND OPERATING EXPENSES

Annual Fund operating expenses are paid from the Fund's assets. The
Fund pays an advisory fee to Gateway Investment Advisers, L.P. (the "Adviser").
The Fund also pays other expenses for services such as maintaining shareholder
records and furnishing shareholder statements and Fund reports. The Fund's
expenses are factored into its share price each day and are not charged directly
to shareholder accounts. The investment advisory contract for the Fund provides
for an advisory fee computed at an annual rate of 0.50% of its average daily net
assets. The investment advisory contract requires the Adviser to waive some or
all of its advisory fees as necessary to limit the Fund's expense ratio to 2.00%
of its average daily net assets. Any contractual waiver will not exceed the
aggregate advisory fee payable by the Fund for the applicable year. The table
presents the advisory fees for the Fund net of the contractual fee waiver. In
addition, the Adviser has voluntarily agreed to reimburse expenses to the extent
required (after giving full effect to the fee waiver) to maintain the Fund's
expense ratio at 2.00%, and the table reflects such reimbursements. The Fund's
actual expense ratio for 1996 was 2.00%. Absent the waiver and voluntary
reimbursements, the advisory fees and operating expenses of the Fund in 1996
would have been 0.50% and 2.35%, respectively. The numbers in the following
table are calculated as a percentage of average net assets.

<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- ------------------------------
<S> <C>
Advisory Fees (after waiver) 0.15%
12b-1 Fees 0.00%
Other Expenses (after reimbursements) 1.85%
-----
Total Fund Operating Expenses (after waiver and reimbursements) 2.00%
(The Fund's Expense Ratio) =====
</TABLE>

<PAGE> 78

Fees and Expenses (Continued)

EXAMPLE

Assume that the Fund's annual return is 5% and that its operating
expenses are exactly as previously described in the Fund Operating Expenses
table. For every $1,000 you invested, the table below shows the amount of
expenses you would incur if you sold your shares after the number of years
indicated. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.

<TABLE>
<CAPTION>
CINCINNATI FUND
- ---------------
<S> <C>
One Year $ 20
Three Years $ 63
Five Years $108
Ten Years $233
</TABLE>

The purpose of this table is to assist you in understanding the direct and
indirect costs and expenses you will bear as a Fund shareholder.

<PAGE> 79

Financial Highlights

The following condensed financial information has been audited by
Arthur Andersen LLP, independent public accountants. The audit report on the
1996 financial statements should be read in conjunction with this condensed
financial information. The audit report on the 1996 financial statements is
incorporated by reference in the SAI and is available from the Trust. The
presentation is for a share outstanding throughout each period.

<TABLE>
<CAPTION>
For the Period from
Year Ended Year Ended November 7, 1994 to
December 31, 1996 December 31, 1995 (3) December 31, 1994
----------------- -----------------

<S> <C> <C> <C>
Net asset value, beginning of period $13.12 $ 9.91 $10.00
------ ------ ------
Net investment income 0.02 0.04 0.03
Net gains (losses) on securities 2.60 3.46 (0.12)
---- ------ ------
Total from investment operations 2.62 3.50 (0.09)
---- ------ ------

Dividends from net investment income (0.02) (0.07) 0.00
Distributions from capital gains (0.32) (0.22) 0.00
------ ------ ------
Total distributions (0.34) (0.29) 0.00
------ ------ ------

Net asset value, end of period $15.40 $13.12 $ 9.91
====== ====== ======

TOTAL RETURN 19.98% 35.31% (0.90%) (2)

Net assets, end of period (millions) $8.98 $5.88 $3.23
Ratio of net expenses to average net assets 2.00% 1.98% (1) 1.96% (1)
Ratio of net investment income to average net 0.13% 0.46% (1) 2.24% (1)
assets
Portfolio turnover rate 10% 9% 0% (2)
Average commission per share $0.0381 -- (4) -- (4)

<FN>
(1) The ratio of net expenses to average net assets would have increased and
the ratio of net investment income to average net assets would have
decreased by 0.02% in 1995 and 0.04% in 1994 had the Adviser not
voluntarily reimbursed expenses. Ratios are annualized in periods less
than one year.
(2) Not annualized.
(3) On December 15, 1995, Gateway Investment Advisers, L.P. became
investment adviser to the Fund.
(4) Disclosure of average commission per share was not required prior to the
year ended December 31, 1996.
</TABLE>

Additional information about the performance of the Fund is contained
in the 1996 Annual Report to shareholders. An Annual Report may be obtained
without charge by writing THE GATEWAY TRUST, P. O. BOX 5211, CINCINNATI, OH
45201-5211 or by calling (800) 354-5525.

<PAGE> 80

How To Open An Account

The Cincinnati Fund is available to individuals, IRAs, trusts, and pension
plans.

OPENING A NEW ACCOUNT

You may open an account by mail or by telephone. Generally, the minimum
initial investment is $1,000 (or $500 for an IRA account). At its discretion,
the Trust may waive these minimums for investments made by employer-sponsored
qualified retirement plans or through automatic investment programs. No sales
commission is charged by the Fund for purchases or redemptions of its shares.
Your purchase will be based on the closing share price of the Fund as next
determined after your request has been received in good order. (See "How Fund
Shares Are Priced" on page 13.)

After your purchase, you will receive a confirmation statement showing
the value of your account. Certificates are not issued for Fund shares.

BY MAIL

To open your account by mail, please complete and sign the New Account
Application Form which accompanies this Prospectus. The application has
instructions to assist you. Please indicate the amount of your investment in the
Fund. When you have completed the application, please mail it to: THE GATEWAY
TRUST, SHAREHOLDER SERVICES, P. O. BOX 5211, CINCINNATI, OH 45201-5211.

Please include your check or money order payable to THE GATEWAY TRUST
with your application.

BY TELEPHONE

To open your account by telephone, you must wire your investment to The
Gateway Trust. Please call Gateway hareholder services at (800) 354-5525 for
instructions.

See Page 9 for additional information about wire transfers and
telephone instructions.

OPENING A NEW IRA ACCOUNT/TRANSFERRING AN EXISTING IRA

To open a new IRA in the Fund, please call Gateway shareholder services
at (800) 354-5525 to obtain an IRA Account Application and an IRA Investment
Kit. To transfer an existing IRA from a bank or other mutual fund to your
Gateway/Cincinnati Fund IRA, you must complete an IRA Transfer Form which is
included in the IRA Investment Kit, in addition to an IRA Account Application.
To transfer or roll over funds from an employer-sponsored plan such as a 401(k)
plan, please call Gateway shareholder services at (800) 354-5525 for
instructions. GATEWAY IRAS ARE FREE OF ANY ANNUAL CHARGES OR TRANSACTION FEES.

OPENING A TRUST/PENSION PLAN ACCOUNT

To open a trust account in the Fund, please complete the New Account
Application Form. In the registration section, give the full legal name of the
trust. Pension plans may invest in the Fund by completing the New Account
Application Form.

OPENING A UNIFORM GIFT TO MINORS ACT ACCOUNT

<PAGE> 81

How To Purchase Additional Shares

The minimum amount for an additional investment is $100.

You may add to your Gateway account at any time by choosing one of the
following purchase options. The minimum amount for an additional investment is
$100. Your purchase will be based on the closing share price of the Fund as next
determined after your request has been received in good order. (See "How Fund
Shares Are Priced" on page 13.)

After each purchase you will receive a confirmation statement showing
the value of your account. Certificates are not issued for Fund shares.

BY MAIL

The most common way of purchasing additional shares in the Fund is by
mail. Please send your check or money order and an Additional Investment Form in
a prepaid envelope. Additional Investment Forms and prepaid envelopes are
included with each confirmation statement, quarterly report, and periodic
newsletter sent to you. Please make all checks or money orders payable to THE
GATEWAY TRUST and mail to: THE GATEWAY TRUST, SHAREHOLDER SERVICES, P. O. BOX
5211, CINCINNATI, OH 45201-5211.

BY TELEPHONE

To avoid any mail delay, you may call Gateway shareholder services at
(800) 354-5525 to arrange a purchase by wire.

See Page 9 for additional information about wire transfers and
telephone instructions.

BY AUTOMATIC INVESTMENT PROGRAM

BY EXCHANGE FROM ANOTHER GATEWAY FUND

To purchase shares by exchanging from another Gateway fund, please call
Gateway shareholder services at (800) 354-5525 for instructions. Your exchange
will be based on the closing share prices of the funds involved in the exchange
as next determined after your request has been received in good order. (See "How
Fund Shares Are Priced" on page 13.)

<PAGE> 82

How To Redeem Shares

Investors may redeem shares by writing or calling Gateway.

You may redeem shares from your Gateway account at any time by choosing
one of the following redemption options. Your redemption will be based on the
closing share price of the Fund as next determined after your request has been
received in good order (See "How Fund Shares Are Priced" on page 13.)

BY MAIL

Redemption requests made in writing should be sent to: THE GATEWAY
TRUST, SHAREHOLDER SERVICES, P. O. BOX 5211, CINCINNATI, OH 45201-5211.

Each redemption request should include a letter of instruction
specifying the number of Fund shares or dollar amount to be redeemed and should
be signed by all owners of the shares exactly as their names appear on the
account. In certain cases, other supporting legal documents may be required. A
check for the redemption proceeds will be mailed to the address shown on your
account.

BY TELEPHONE

Unless you have declined the telephone exchange and/or redemption
privileges, you may redeem your Fund shares by calling Gateway shareholder
services at (800) 354-5525. If you redeem your shares by telephone, the
redemption proceeds will be paid by check to the owner(s) of the shares shown on
Gateway's records and mailed to the address shown on Gateway's records for your
account. Redemption proceeds can be sent by wire if you completed the wire
transfer instructions in your original New Account Application Form or you have
sent separate wire transfer instructions to Gateway. Separate wire transfer
instructions must be signed by all owners of the shares exactly as their names
appear on the account, and the signatures must be guaranteed. The telephone
redemption procedure is not available for IRAs.

SYSTEMATIC WITHDRAWAL PROGRAM

See Page x for additional information about redemptions and telephone
instructions.

<PAGE> 83

Additional Shareholder Information

FEES CHARGED BY YOUR BROKER OR BANK

If you buy or sell shares of the Fund through a broker, the broker may
charge you additional fees and expenses. If you buy shares through a wire
transfer, The Gateway Trust will not charge you for the wire. Your financial
institution may charge you for this service or for transfers from your bank
account to the Fund through the Automatic Investment Program. If you redeem
shares through a wire transfer, the Trust's custodian will assess a wire charge
of $10. Your financial institution may also charge you for receiving a wire
transfer of redemption proceeds.

ADDITIONAL IRA INFORMATION

For information about redeeming shares from an IRA, please call Gateway
shareholder services at (800) 354-5525. More detailed information about
transfers to and distributions from an IRA is set forth in the SAI.

TELEPHONE TRANSACTIONS

The Gateway Trust will not be liable for any damages resulting from
following instructions received by telephone that it reasonably believes to be
genuine. The Trust will employ reasonable procedures to confirm that telephone
instructions are genuine. All shareholders of the Fund have telephone redemption
and exchange privileges unless the shareholder has specifically declined these
privileges. If you do not wish to have telephone privileges for your account,
you must mark the appropriate section on the New Account Application Form or
notify the Trust in writing. To protect shareholders who have telephone
privileges, the Trust follows certain procedures, including requiring a form of
personal identification before acting upon telephone instructions, making
redemption checks requested by telephone payable only to the owner(s) of the
account shown on the Trust's records, mailing such redemption checks only to the
account address shown on the Trust's records, directing wire redemptions
requested by telephone only to the bank account shown on the Trust's records,
providing written confirmation of all transactions, and normally tape recording
any instructions received by telephone.

REDEMPTIONS BY THE TRUST

The Gateway Trust reserves the right to reject any investment at any
time. The Trust also reserves the right to redeem your account(s) under certain
circumstances. You will receive written notice at least 60 days prior to the
redemption of your account(s) by the Trust. The Trust may redeem your account
when the aggregate value of your account(s) falls below $800 (other than as a
result of market action) unless you purchase additional shares to increase the
value of your account(s) to at least $1,000 before the end of the 60-day period.
The Trust will redeem your account if you do not provide a valid U. S. social
security number or taxpayer identification number or other requested documents
before the end of the 60-day period. The Trustees of The Gateway Trust can
terminate any series of the Trust upon written notification to the shareholders
of the applicable series.

ADDITIONAL REDEMPTION INFORMATION

Redemption proceeds will be sent to you no later than five business
days after your request is received in good order. The right of redemption may
be suspended in certain circumstances, such as the closing of the New York Stock
Exchange for a period other than weekends or normal holidays.

<PAGE> 84

Performance Information & Explanation of Terms

Gateway has become an industry leader in providing prospective investors and
existing shareholders with the most complete information on its no-load funds.

YEAR-BY-YEAR TOTAL RETURNS SINCE INCEPTION

<TABLE>
<CAPTION>
Cincinnati Fund S&P 500 Stock Index S&P MidCap 400 Index Wilshire Small Cap Index
<S> <C> <C> <C> <C>
1996 19.98% 22.96% 19.20% 19.97%
1995 35.31 37.58 30.95 26.58
1994 (0.90)* 1.32 3.59 3.09

<FN>
* November 7, 1994 to December 31, 1994
</TABLE>

COMPARATIVE PERFORMANCE INFORMATION

The Fund may compare its performance to various indexes, such as the
S&P 500 Index. The Fund may also compare its performance to that of other mutual
funds or categories of mutual funds as reported by independent services, such as
Morningstar, Inc. and Value Line Mutual Fund Survey, or by other financial
publications.

EXPLANATION OF TERMS

TOTAL RETURN is the change in the value of an investment in a fund over
a given period, assuming reinvestment of distributions.

An AVERAGE ANNUAL TOTAL RETURN is a rate of return that, if achieved
consistently throughout a given period, would produce a cumulative total return
equal to that actually achieved by the fund over the same period. Average annual
total returns smooth out variations in performance; they are not the same as
actual year-by-year results.

The S&P 500 INDEX is a widely recognized measure of performance for the
stock market. The S&P 500 figures represent the prices of an unmanaged index of
500 common stocks and assume reinvestment of all dividends paid on the stocks in
the index.

The S&P MIDCAP 400 INDEX is an unmanaged index of 400 common stocks
with a market capitalization range of $196 million to $6.5 billion. The
performance of this index assumes reinvestment of all dividends paid on the
stocks in the index.

The WILSHIRE SMALL CAP INDEX is an unmanaged index of 250 common stocks
with a market capitalization range of $54 million to $2.5 billion. The
performance of this index assumes reinvestment of all dividends paid on the
stocks in this index.

U.S. TREASURY BILLS are negotiable debt obligations of the United
States government. Since they are secured by the full faith and credit of the
government, they are regarded as risk-free investments. Treasury bills are
short-term securities with maturities of one year or less.

<PAGE> 85

Performance Information (Continued)

Growth of a $10,000 Investment
- ------------------------------

(Insert Chart Here)

Cincinnati Fund Plot Points - Growth of $10,000 Chart

<TABLE>
<CAPTION>
Cincinnati S&P 500 S&P MidCap 400 Wilshire Small
Fund Index Cap Index

This chart shows the growth of a $10,000 investment made at the Fund's
inception.

<TABLE>
<CAPTION>
============================================

Cincinnati Fund
Average Annual Total Returns
As Of December 31, 1996

============================================
<S> <C>
One Year 19.98%
Five Years N/A
Life of Fund 24.74%

============================================
</TABLE>

<PAGE> 86

Dividends And Distributions

Fund shareholders may reinvest their dividends and distributions at no charge.

Shareholders of the Fund may elect to receive distributions either in
cash or in additional shares of the Fund. To receive your distributions in cash,
please mark the appropriate box on the New Account Application Form. Once your
account is opened, you may change the way your distributions are handled by
writing or calling Gateway.

The Fund normally declares dividends and net capital gains, if any, at
the end of December.

FUND PRICING WHEN DIVIDENDS ARE DECLARED

The price of the Fund is affected by its declaration of dividends and
capital gain distributions. The price of the Fund, as adjusted for market
activity, generally drops by the amount of the declared dividend and capital
gain distribution. As an example, assume that on December 31 the Fund declares a
dividend in the amount of $0.50 per share. If the Fund's price per share was
$16.50 on December 30 and there was no change in the value of the Fund's
investments due to market activity, the Fund's price on December 31 would be
$16.00. The decline of $0.50 per share would be the result of the declaration of
the $0.50 dividend.

TAX CONSEQUENCES OF BUYING A DIVIDEND

If you buy Fund shares just before the Fund declares a dividend, you
will pay the full price for the shares and then receive a portion of the price
back as a taxable distribution. In the example above, if you bought shares of
the Fund on December 30, you would pay $16.50 per share. On December 31, the
Fund would pay you $0.50 per share as a dividend and your shares would be worth
$16.00 per share. The dividend paid to you would generally be included in your
gross income for tax purposes, whether or not you reinvested the dividend. For
this reason, you should carefully consider the tax consequences of buying shares
of the Fund in late December.

<PAGE> 87

How Fund Shares Are Priced

The net asset value (closing share price) of the Fund ordinarily is
determined as of the close of the New York Stock Exchange (the "NYSE"), normally
4:00 P.M. Eastern Time, on each day during which the NYSE is open for trading.
Under unusual circumstances, the net asset value may be determined at other
times as authorized by the Board of Trustees. Net asset value is determined by
deducting the liabilities of the Fund from the market or fair value of its
assets.

The Fund normally values stocks at the average of the closing bid and
asked quotations. Securities for which market quotations are not readily
available, securities in which trading has been suspended during the day, and
all other assets are valued at fair value. Fair value is determined in good
faith under procedures adopted by the Board of Trustees.

<PAGE> 88

PORTFOLIO MANAGER PROFILE

J. Patrick Rogers, CFA
- ----------------------
Portfolio Manager of the Fund Since Inception
MBA Xavier University 1994
BBA University of Notre Dame 1986
Age 33

J. Patrick Rogers, CFA, portfolio manager of the Cincinnati Fund,
joined Gateway Investment Advisers, Inc. in 1989. He is currently president of
both Gateway Investment Advisers, Inc. and The Gateway Trust, as well as
portfolio manager for the Index Plus Fund, the Mid Cap Index Fund, and the Small
Cap Index Fund.

Mr. Rogers currently serves as a board member of the Cincinnati Center
for Developmental Disorders Foundation and the Greater Cincinnati Mutual Fund
Association.

He was awarded the Martin B. Friedman Award at Xavier University which
is given annually to the most outstanding MBA student. Mr. Rogers is a frequent
speaker at various individual investor groups, including AAII, and is active in
many industry associations, including the 100% No-Load Mutual Fund Council.

He and his wife, Elizabeth, have two children.

<PAGE> 89

About The Investment Adviser

INVESTMENT ADVISER

Gateway Investment Advisers, L.P. (the "Adviser"), a Delaware limited
partnership, has acted as the investment adviser for the Fund since December 15,
1995. Gateway Investment Advisers, Inc. ("GIA") provided investment advisory
services to the Fund from its formation until December 15, 1995. The Adviser is
the successor in interest to the assets, business, and personnel of GIA. The
Adviser is a limited partnership in which GIA is the general partner with a 76%
partnership interest. The sole limited partner of the Adviser is Alex. Brown
Investments Incorporated, an affiliate of Alex. Brown & Sons Incorporated, a
nationally known investment banking firm and registered broker/dealer located in
Baltimore, Maryland. The principal and controlling shareholders of GIA are
Walter G. Sall and J. Patrick Rogers. As of December 31, 1996, the Adviser had
approximately $385 million in assets under its management, including
approximately $221 million in assets invested in the Gateway funds.

ADVISORY SERVICES

The Adviser provides the Fund with investment research and advice. The
Adviser also places with brokers the Fund's buy and sell orders for portfolio
securities. When the Adviser places these orders, it uses its best efforts to
obtain the most favorable price and execution available for the Fund, except to
the extent that the Fund may be permitted to pay higher commissions for
brokerage and research services pursuant to Section 28(e) of the Securities
Exchange Act of 1934. Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., the Adviser may consider sales of Fund
shares as a factor in the selection of brokers to execute Fund portfolio
transactions.

ADVISORY FEES

The Fund pays the Adviser an advisory fee calculated at an annual rate
of 0.50% of the average daily net asset value of the Fund. The advisory contract
requires the Adviser to waive some or all of its advisory fees as necessary to
limit the Fund's expense ratio to 2.00% of its average daily net assets. Any
contractual waiver will not exceed the aggregate advisory fee payable by the
Fund for the applicable year.

FUND EXPENSES

The Fund pays all of its ordinary business expenses, other than
advertising and marketing expenses which are paid by the Adviser. Ordinary
business expenses include the advisory fees, custodial fees, brokerage
commissions, fees paid to the Adviser for providing shareholder services,
expenses incurred in the registration of the Fund shares with federal and state
securities agencies, and the Fund's proportionate share of the collective
general expenses of the Trust. Expenses applicable to more than one of the
Gateway funds are either allocated on the basis of the number of shareholders or
net assets in each fund. These collective expenses include, but are not limited
to, certain printing and mailing costs, professional fees, and insurance costs.

The Adviser provides shareholder, transfer, dividend disbursing,
financial, and administrative services to the Fund. The Fund reimburses the
Adviser for printing, mailing, and compliance expenses associated with providing
its services. In addition, the Fund reimburses the Adviser for other processing
expenses at a minimum rate of $2,500 per month, up to a maximum annual rate of
0.20% of the Fund's average net assets. The Fund also pays the Adviser a monthly
fee of $4,000 per month for the financial and administrative services it
provides.

<PAGE> 90

Taxes

DIVIDENDS AND DISTRIBUTIONS

The Fund intends to distribute to its shareholders substantially all of
its net investment income and net capital gains, as determined in accordance
with appropriate tax regulations.

TAXES ON DIVIDENDS AND DISTRIBUTIONS

TAXES ON REDEMPTIONS AND EXCHANGES

Redemptions, including exchanges between Gateway funds, will be reported
to you on Form 1099-B.

TAXES ON IRAS

Contributions, investments, and distributions with respect to IRAs are
subject to specific IRS rules. The IRA Investment Kit contains additional
information about these rules.

ADDITIONAL INFORMATION

The tax discussion set forth above and in the SAI is included for general
information only. You must determine the applicability of federal, state, and
local taxes to dividends and distributions received on your shares of the Fund
and to proceeds received from redemptions or exchanges of Fund shares.
Prospective investors should consult their own tax advisers concerning the tax
consequences of an investment in the Fund.

<PAGE> 91

Investment Practices And Restrictions

CINCINNATI FUND

The investment objective of the Cincinnati Fund is to achieve capital
appreciation through investment in the common stock of companies with an
important presence in the Greater Cincinnati Area ("Cincinnati Companies").

INVESTMENT PRACTICES: The Fund attempts to achieve its objective by
investing in the common stocks of Cincinnati Companies that meet certain
criteria included in a proprietary model developed by the Adviser. These
criteria include level of employment and nature of operations in the Greater
Cincinnati Area. The Adviser has also incorporated certain industry
diversification, liquidity, market capitalization, and listing criteria into the
model. The Adviser uses the proprietary model to select the Fund's portfolio of
stocks and to determine the proportion of the Fund's assets that are invested in
each stock.

To be eligible for inclusion in the Fund's portfolio, a stock currently
must meet the following model criteria: (1) the stock must be issued either by a
company that employs at least fifty persons in the Greater Cincinnati Area or by
a company that maintains its corporate headquarters in the Greater Cincinnati
Area; (2) the stock must be issued by a company with a market capitalization of
$5 million or more; and, (3) the stock must be listed on a national securities
exchange, such as the New York Stock Exchange, the American Stock Exchange, or
the National Market System of the NASDAQ. The Greater Cincinnati Area, for
purposes of the model, is defined as the Cincinnati and Hamilton-Middletown
Consolidated Metropolitan Statistical Area (the "CMSA"). The CMSA includes
Hamilton, Clermont, Warren, and Butler counties in Ohio; Boone, Campbell, and
Kenton counties in Kentucky; and Dearborn county in Indiana.

The Adviser rebalances the portfolio and makes appropriate adjustments
in the portfolio to reflect changes in the underlying corporate data. In
addition, the Adviser may modify the proprietary model, or the selection
criteria incorporated in the model, in response to market and economic
developments. Such modifications could result in changes to the composition of
the Fund's portfolio.

RISK FACTORS

There are risks inherent in all securities investments. Thus, there can
be no assurance that the Fund will be able to achieve its investment objective.
Changes and developments in the economic environment of the Greater Cincinnati
Area may have a disproportionate effect on the Fund's portfolio.

The portfolio of the Fund contains some small capitalization stocks.
Investments in companies with smaller capitalization are generally more volatile
and may be less liquid than investments in companies with larger capitalization.

As the Fund has a long-term investment objective, it may not be an
appropriate investment for persons intending to hold Fund shares for less than
six months.

<PAGE> 92

Investment Practices And Restrictions (Continued)

OTHER INVESTMENT STRATEGIES

Under normal conditions, the Adviser invests at least 65% of the Fund's
total assets in securities from two sources: (1) those issued by companies that
maintain their headquarters in the Greater Cincinnati Area; and, (2) those
issued by companies that are headquartered elsewhere who rank among the 25
largest publicly held employers in the Greater Cincinnati Area. The Fund may
hold cash for purposes of liquidity or for temporary defensive purposes. Cash is
normally invested in repurchase agreements. Cash may also be invested in
securities of the U. S. government or any of its agencies, bankers' acceptances,
commercial paper, or certificates of deposit. For temporary defensive purposes,
the Fund may hold up to 100% of its assets in cash instruments. Under normal
conditions, the Adviser does not intend to invest more than 5% of the Fund's net
assets in any cash instrument other than repurchase agreements.

In a repurchase agreement, the Fund acquires securities suitable for
investments in accordance with its policies and the seller (usually a bank)
agrees at the time of sale to repurchase such securities at an agreed-upon date,
price, and interest rate. Investments in repurchase agreements are subject to
the risk that the selling bank may default in its repurchase obligation.
Investments in repurchase agreements are also subject to the risk that the
selling bank may become financially insolvent which could prevent or delay the
Fund's disposition of the collateral held as security for these transactions.
Such repurchase agreements are fully collateralized and the Fund takes
possession of such collateral, thus reducing the risk of default. The collateral
is subject to continuing market fluctuations and its value could be more or less
than the repurchase price.

ADDITIONAL INFORMATION

For further information concerning the investment practices described
above and certain risks associated with them, see "INVESTMENT PRACTICES AND
RESTRICTIONS" in the SAI.

FUNDAMENTAL POLICIES

The investment objective and investment restrictions of the Fund are
designated as fundamental policies. Such fundamental policies may not be changed
without approval of the holders of a majority of the Fund's outstanding shares.

The investment practices of the Fund as described above are not
fundamental policies and may be changed without shareholder approval.

INVESTMENT RESTRICTIONS

Certain investment restrictions applicable to the Fund are described
below. The complete text of these restrictions is set forth in the SAI under the
caption "INVESTMENT PRACTICES AND RESTRICTIONS." Additional investment
restrictions pertaining to the Fund are set forth in the SAI under the same
caption.

INVESTMENTS IN ONE ISSUER: The Fund may not purchase any security if,
as a result, the Fund would then hold more than 10% of the common stock of the
issuer.

INVESTMENTS IN START-UP COMPANIES: The Fund may not purchase any
security if, as a result, the Fund would then have more than 5% of its total
assets invested in securities of companies less than three years old.

INVESTMENTS IN REPURCHASE AGREEMENTS: The Fund may not invest more than
5% of its total assets in repurchase agreements with a maturity longer than
seven days.

<PAGE> 93

General Information About The Gateway Trust

THE TRUST AND THE BOARD OF TRUSTEES

The Gateway Trust is an open-end management investment company
established as an Ohio business trust in 1986. From 1977 to 1986, the Trust's
predecessor operated as a Maryland corporation. The Trust has four series: the
Cincinnati Fund, the Gateway Index Plus Fund, the Gateway Mid Cap Index Fund
(formerly the Gateway Capital Fund), and the Gateway Small Cap Index Fund.
Shares of the Cincinnati Fund are offered by this prospectus. The Gateway Index
Plus Fund, the Gateway Mid Cap Index Fund, and the Gateway Small Cap Index Fund
are offered by a separate prospectus.

SHAREHOLDER MEETINGS AND VOTING

A meeting of shareholders must be called if shareholders holding at
least 10% of the Trust's shares (or shareholders holding at least 10% of any
fund's shares as to any matter affecting only such fund) file a written request
for a meeting.

As of December 31, 1996, the shareholders of the Index Plus Fund
controlled approximately 84% of the outstanding shares of the Trust. Therefore,
in the foreseeable future, when the shareholders of the Trust elect the Trustees
or vote in the aggregate on any other issue, the shareholders of the Index Plus
Fund will be able to elect the Trustees or to decide the issue. Shareholders do
not have cumulative voting rights as to the election of Trustees. As a result,
if a shareholder meeting is called to elect Trustees, a majority of the shares
voting at the meeting can elect all of the Trustees.

<PAGE> 94
- --------------------------------------------------------------------------------

THE GATEWAY TRUST

- --------------------------------------------------------------------------------

Registration Statement
Securities Act of 1933 Registration No. 2-59895
Investment Company Act of 1940 Registration No. 811-02773

CINCINNATI FUND

STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997

This Statement is not a prospectus but should be read in conjunction
with the current Prospectus of the Cincinnati Fund dated May 1, 1997. A copy of
the Prospectus may be obtained from the Fund by written or telephone request
directed to the Fund at the address or the telephone number shown below.

- --------------------------------------------------------------------------------

P. O. BOX 5211
CINCINNATI, OHIO 45201-5211
(800) 354-5525

- --------------------------------------------------------------------------------

<PAGE> 95

TABLE OF CONTENTS
-----------------

<TABLE>
<CAPTION>
<S> <C>
INTRODUCTION.....................................................................................

General Information About The Gateway Trust....................................................

INVESTMENT PRACTICES AND RESTRICTIONS............................................................

General........................................................................................

Investment Restrictions........................................................................

PERFORMANCE AND RISK INFORMATION.................................................................

Performance Information........................................................................
Total Return Calculations..................................................................
Historical Results.........................................................................

Risk Information...............................................................................
Comparative Indexes........................................................................
Standard Deviation.........................................................................
Beta.......................................................................................

Rankings And Comparative Performance Information...............................................

SHAREHOLDER SERVICES.............................................................................

Open Account...................................................................................

Automatic Investment Program...................................................................

IRAs...........................................................................................

Systematic Withdrawal Program..................................................................

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................................

INVESTMENT ADVISORY AND OTHER SERVICES...........................................................

Gateway Investment Advisers, L.P...............................................................

Investment Advisory Contract...................................................................

Custodian......................................................................................

Shareholder Servicing, Transfer, Dividend Disbursing And Financial Servicing Agent.............

BROKERAGE........................................................................................

ADDITIONAL TAX MATTERS...........................................................................

Federal Tax Matters............................................................................

State And Local Tax Aspects....................................................................

TRUSTEES AND OFFICERS OF THE TRUST...............................................................

INDEPENDENT PUBLIC ACCOUNTANTS AND FINANCIAL STATEMENTS..........................................

PRINCIPAL HOLDERS OF CINCINNATI FUND SHARES......................................................

SCHEDULE A.......................................................................................
</TABLE>

<PAGE> 96

INTRODUCTION
------------

GENERAL INFORMATION ABOUT THE GATEWAY TRUST

The Gateway Trust (the "Trust") is an Ohio business trust which is
authorized to establish and operate one or more separate series of mutual funds
(herein referred to as "funds" or individually as a "fund"). Each fund has its
own investment policies, restrictions, practices, assets, and liabilities. Each
fund is represented by a separate series of shares of beneficial interest in the
Trust ("Shares"). The Trust's operation is governed by Chapter 1746 of the Ohio
Revised Code, by a Second Amended Agreement and Declaration of Trust dated as of
December 29, 1992, as amended, and by the Trust's Bylaws, as amended.

At present, there are four series of the Trust:

<TABLE>
<CAPTION>
---------------------------------------- ----------------------- ---------------------------------------------
NAME OF FUND DATE ORGANIZED FORMER NAMES
---------------------------------------- ----------------------- ---------------------------------------------

<S> <C> <C>
Gateway Index Plus Fund 1977 Gateway Option Index Fund until March
1990; Gateway Option Income Fund until
February 1988; Gateway Option Income
Fund, Inc. until May 1986

Gateway Mid Cap Index Fund July 1992 Gateway Capital Fund until December 1993

Gateway Small Cap Index Fund April 1993 None

Cincinnati Fund November 1994 None

---------------------------------------- ----------------------- ---------------------------------------------
</TABLE>

The Gateway Index Plus Fund, the Gateway Mid Cap Index Fund, and the
Gateway Small Cap Index Fund are offered in one combined prospectus (the
"Combined Prospectus"). The Cincinnati Fund is offered in a separate prospectus
(the "Cincinnati Prospectus"). The Cincinnati Fund has a separate Statement of
Additional Information. The other three funds have a combined Statement of
Additional Information.

Gateway Investment Advisers, L.P. (the "Adviser") acts as the funds'
investment adviser.

3
<PAGE> 97

INVESTMENT PRACTICES AND RESTRICTIONS
-------------------------------------

GENERAL

The Cincinnati Fund, (the "Fund"), may hold cash for purposes of
liquidity or for temporary defensive purposes. The Fund generally will hold cash
reserves for the purpose of paying expenses and share redemptions and may hold
cash received from the sale of the Fund's shares which has not yet been
invested. In addition, the Adviser may determine from time to time that, for
temporary defensive purposes, the Fund should reduce (and in periods of unusual
market conditions reduce substantially or liquidate entirely) its investment in
common stock. For temporary defensive purposes, the Fund may hold up to 100% of
its assets in cash.

Cash is normally invested in repurchase agreements. Cash may also be
invested in securities of the U. S. government or any of its agencies, bankers'
acceptances, commercial paper, or certificates of deposit (collectively "cash
instruments"). Commercial paper investments will be limited to investment grade
issues rated A-1 or A-2 by Standard & Poor's or Prime-1 or Prime-2 by Moody's
Investors Service, Inc. Certificates of deposit investments will be limited to
obligations of domestic banks with assets of $1 billion or more. Under normal
conditions, the Adviser does not intend to invest more than 5% of the Fund's net
assets in any cash instruments other than repurchase agreements.

Repurchase agreements are instruments under which the Fund buys
securities suitable for investment under its policies and obtains the concurrent
agreement of the seller (usually a bank) to repurchase such securities at an
agreed-upon date, price, and interest rate. Investments in repurchase agreements
are subject to the risk that the selling bank may default in its repurchase
obligation. However, not more than 5% of the Fund's total assets may be invested
in repurchase agreements which have a maturity longer than seven days.

INVESTMENT RESTRICTIONS

The Trust has adopted certain fundamental policies with respect to the
Fund that may not be changed without a vote of shareholders of the Fund. Under
these policies, the Fund may not:

1. purchase any security if, as a result, the Fund (or the funds in
the Trust together) would then hold more than 10% of any class
of securities of an issuer (taking all common stock issues of an
issuer as a single class, all preferred stock issues as a single
class, and all debt issues as a single class), or more than 10%
of the outstanding voting securities of an issuer.

2. purchase any security if, as a result, the Fund would then have
more than 5% of its total assets (taken at current value)
invested in securities of companies (including predecessors)
less than three years old and in equity securities for which
market quotations are not readily available.

3. purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of
purchase and sales of securities).

4. make short sales of securities or maintain a short position (a)
unless, at all times when a short position is open, the Fund
owns an equal amount of such securities or securities

4
<PAGE> 98

convertible into or exchangeable (without payment of any further
consideration) for securities of the same issue as, and equal in
amount to, the securities sold short, and (b) unless not more
than 10% of the Fund's net assets (taken at current value) are
held as collateral for such sales at any one time.

It is the present intention of management to make such sales
only for the purpose of deferring realization of gain or loss
for federal income tax purposes.

5. borrow money except as a temporary measure for extraordinary or
emergency purposes and then only from banks and only in amounts
not in excess of 5% of the Fund's total assets (except to meet
redemption requests as discussed below), taken at the lower of
cost or market.

It is the present intention of management that the Fund will not
purchase additional portfolio securities at any time when its
borrowing exceeds 5% of its total assets. In order to meet
redemption requests without immediately selling any portfolio
securities, the Fund may borrow an amount up to 25% of the value
of its total assets including the amount borrowed. If, due to
market fluctuations or other reasons, the value of the Fund's
assets falls below 400% of its borrowing, the Fund will reduce
its borrowing which may result in the Fund being required to
sell securities at a time when it may otherwise be
disadvantageous to do so. This borrowing is not for investment
leverage but solely to facilitate management of the portfolio by
enabling the Fund to meet redemption requests where the
liquidation of portfolio securities is deemed to be inconvenient
or disadvantageous. However, the Fund might be deemed to be
engaged in leveraging in that any such borrowing will enable the
Fund to continue to earn money on investments which otherwise
may have been sold in order to meet redemption requests.

6. pledge more than 10% of its total assets, taken at market value.

7. purchase or retain securities of any company if, to the
knowledge of the Trust, officers and trustees of the Trust or of
the Adviser who individually own more than 1/2 of 1% of the
securities of that company together own beneficially more than
5% of such securities.

8. buy or sell commodities or commodities futures or options
contracts, or real estate or interests in real estate, although
it may purchase and sell (a) securities which are secured by
real estate, and (b) securities of companies which invest or
deal in real estate.

9. act as underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be
an underwriter under certain provisions of the federal
securities laws.

10. make investments for the purpose of exercising control or
management.

11. participate on a joint or joint and several basis in any trading
account in securities.

5
<PAGE> 99

12. purchase any security restricted as to disposition under the
federal securities laws.

13. invest in securities of other investment companies, except as
part of a merger, consolidation, or other acquisition.

14. invest in interests in oil, gas, or other mineral exploration or
development programs, although it may invest in the common
stocks of companies which invest in or sponsor such programs.

15. make loans, except through the purchase of bonds, debentures,
commercial paper, corporate notes, and similar evidences of
indebtedness of a type commonly sold privately to financial
institutions (subject to the limitation in paragraph 12 above),
and except through re-purchase agreements.

No more than 5% of the Fund's assets will be invested in
repurchase agreements which have a maturity longer than seven
days. In addition, the Fund will not enter into repurchase
agreements with a securities dealer if such transactions
constitute the purchase of an interest in such dealer under the
Investment Company Act of 1940. The purchase of a portion of an
issue of such securities distributed publicly, whether or not
such purchase is made on the original issuance, is not
considered the making of a loan.

16. purchase any security (other than U. S. government obligations)
if, as a result thereof, less than 75% of the value of the
Fund's total assets is represented by cash and cash items
(including receivables), government securities, and other
securities which, for purposes of this calculation, are limited
in respect of any one issuer to an amount not greater in value
than 5% of the value of the Fund's total assets and to not more
than 10% of the outstanding voting securities of such issuer.

All of the funds in the Trust taken as a group also must satisfy
this 10% test.

17. concentrate the investments of the Fund in a single industry.

18. write, purchase, or sell puts, calls, or combinations thereof.

19. buy or sell commodities, commodities futures contracts, or
commodities options contracts.

The Trust has no fundamental policy with respect to the issuance of
senior securities by the Fund; however, the Investment Company Act of 1940
prohibits the Trust's issuance of any such securities.

Although the practices described in paragraphs 4, 5, and 6 above could
involve more than 5% of the Fund's assets, none of those practices has been
employed by the Fund. The Adviser has no current intention of causing the Fund
to employ such practice in the coming year.

6
<PAGE> 100

PERFORMANCE AND RISK INFORMATION
--------------------------------

PERFORMANCE INFORMATION

The Fund may quote performance in various ways. All performance
information supplied by the Fund is based upon historical results and is not
intended to indicate future performance. Total returns and other performance
information may be shown numerically or in a table, graph, or similar
illustration. The Fund's share prices and total returns fluctuate in response to
market conditions, interest rates, and other factors.

TOTAL RETURN CALCULATIONS
-------------------------

P (1 + T)n = ERV where: T = Average annual total return
n = Number of years and portion of a year
ERV = Ending redeemable value (of an initial
hypothetical $1,000 investment)
at the end of the period
P = $1,000 (the hypothetical initial
investment)

If a fund has been in existence for less than one, five, or ten years,
the time period since the date it commenced operations will be substituted for
the periods stated.

Average annual total return is calculated as required by applicable
regulations promulgated by the Securities and Exchange Commission (the "SEC").
In addition to average annual total returns, the Fund may quote year-by-year
total returns and cumulative total returns reflecting the simple change in value
of any investment over a stated period. Average annual, year-by-year, and
cumulative total returns may be quoted as a percentage or as a dollar amount.

7
<PAGE> 101

HISTORICAL RESULTS
------------------

The following table shows the Fund's average annual and cumulative
total returns for the period ended December 31, 1996:

<TABLE>
<CAPTION>
- --------------------------------------- ---------------- ----------------- ---------------------
One Year Five Years Life of Fund
- --------------------------------------- ---------------- ----------------- ---------------------
<S> <C> <C> <C>
Average Annual Total Return 19.98% n/a 24.74%
- --------------------------------------- ---------------- ----------------- ---------------------
Cumulative Total Return 19.98% n/a 60.88%
- --------------------------------------- ---------------- ----------------- ---------------------
</TABLE>

The table below shows the redeemable value on December 31, 1996, for an
initial investment of $10,000 in the Fund that was made at the beginning on the
one- and five-year periods, and the commencement of the Fund's operations. The
table assumes all dividends and distributions have been reinvested in additional
shares.

<TABLE>
<CAPTION>
------------------ ---------------- ---------------------
One Year Five Years Life of Fund
------------------ ---------------- ---------------------
<S> <C> <C>
$11,997.52 n/a $16,088.22
------------------ ---------------- ---------------------
</TABLE>

RISK INFORMATION

In evaluating the performance of any investment including the Fund, it
is important to understand the risks involved in the investment. Information
regarding the performance of an investment, while valuable in itself, is more
meaningful when it is related to the level of risk associated with that
investment. Thus, two different mutual funds that produce similar average annual
total returns may present markedly different investment opportunities if the
risk of loss associated with one mutual fund is greater than that of the other
mutual fund.

COMPARATIVE INDEXES
-------------------

The performance and risk of the Fund may be compared to various broadly
recognized indexes such as the S&P 500 Index or the Lehman Government/Corporate
Bond Index. These comparative indexes are used because they are the standard
benchmarks of the stock market and bond market respectively. The Fund's
performance and risk may also be compared to other appropriate indexes.

8
<PAGE> 102

STANDARD DEVIATION
------------------

Standard deviation measures the volatility of the total return of the
Fund. Standard deviation is one method of comparing the total return of a fund
to the average monthly total return of the Fund. In general, a fund that has a
greater standard deviation is a fund that has displayed a greater tendency to
vary from its own average monthly total return. Standard deviation can also be
used to compare the total return of a fund to the total return of an index or
another mutual fund. By comparing the magnitude of the standard deviation of
each investment, an analyst is able to determine the relative volatility of each
investment. An investment with an expected return of 10% and a standard
deviation of 15% would be expected to earn a total return ranging from -5% to
+25% about 68% of the time, a total return ranging from -20% to +40% about 95%
of the time, and a total return ranging from -35% to +55% about 97% of the time.

BETA
----

Beta analyzes the market risk of the Fund by showing how responsive the
Fund is to the market as defined by an index. Beta is a comparative measure of
the Fund's volatility in relation to an appropriate index. Generally, higher
betas represent riskier investments. By definition, the beta of the market is
1.00. Thus, a fund with a beta higher than 1.00 is expected to perform better
than the market in up markets and worse than the market in down markets. Beta is
the slope of the "least square line" which compares the Fund with an index.

RANKINGS AND COMPARATIVE PERFORMANCE INFORMATION

The Fund may compare its performance to that of other mutual funds or
categories of mutual funds as reported by independent services such as
Morningstar, Inc., Lipper Analytical Services, Inc., and Value Line Mutual Fund
Survey, or by other financial publications with a circulation of 10,000 readers
or more. Performance comparisons may be expressed as ratings, such as the
proprietary ratings published by Morningstar, Inc., or rankings, such as the
rankings of funds in various categories published by Lipper Analytical Services,
Inc. Performance comparisons may also be expressed as designations (such as a
certain number of "stars") or descriptions (such as "best fund") assigned by
such services or publications.

SHAREHOLDER SERVICES
--------------------

OPEN ACCOUNT

The Fund's regular account for investors who purchase its shares is the
Open Account. The Open Account facilitates regular purchases of Fund shares over
a period of years and provides the option of receiving dividends and
distributions either in cash or in Fund shares. Gateway does not charge for the
automatic reinvestment of dividends and distributions.

9
<PAGE> 103

investor showing the shares purchased, the exact price paid for the shares, and
the total number of shares owned. Share certificates will not be issued.

AUTOMATIC INVESTMENT PROGRAM

For established accounts, shares of the Fund may be purchased on a
monthly or quarterly basis in amounts of $100 or more per purchase. Shareholder
Services can arrange to have such funds transferred automatically from an
investor's bank account to the Trust for purchase of shares. An investor can
make arrangements to use the Automatic Investment Program (or discontinue
participation) by contacting Shareholder Services at (800) 354-5525.

IRAS

Investors may purchase shares of the Fund through Individual Retirement
Accounts ("IRAs") which are permitted to invest in shares of a mutual fund. The
Trust itself sponsors a form of IRA (the "Gateway IRA") which can be adopted by
an investor and which is specifically designed to permit the investor to invest
in shares of any Gateway fund selected by the investor. The custodian of the
Gateway IRA is Star Bank. Investors can obtain forms to establish a Gateway IRA
by calling Shareholder Services at (800) 354-5525.

An investor may make a direct transfer of assets from one IRA to a
Gateway IRA by directing the existing IRA custodian or trustee to transfer
directly to the Gateway IRA the amount held in that prior IRA, without directly
receiving those funds or being taxed on the transfer. There is no minimum
holding period for a direct transfer of IRA assets from one custodian or trustee
to another. An IRA Transfer Form is included in the IRA Investment Kit, or you
may call Shareholder Services at (800) 354-5525 to obtain a transfer form.

A Gateway IRA is eligible to receive direct rollovers of distributions
from a qualified employer plan. An investor can make a direct rollover by
instructing the employer's plan to wire the distribution to Star Bank as
custodian for a Gateway IRA. The distribution should be wired to:

The Gateway Trust c/o Star Bank, N.A.
ABA #042-0000-13
Cincinnati, Ohio
Name (insert investor name)

10
<PAGE> 104

Gateway Account No. (insert investor account number)
Name of Gateway fund(s) in which you wish to invest

The Gateway Trust
Shareholder Services
P. O. Box 5211
Cincinnati, OH 45201-5211

An investor can make a 60-day rollover of a distribution from a
qualified employer plan by instructing the employer's plan to prepare a check
payable to the investor and by endorsing or cashing the check and depositing
some or all of the proceeds in a Gateway IRA. The deposit must be delivered in
person to Gateway, or mailed to Gateway at the above address within 60 days of
when the investor receives the distribution. The employer's plan must withhold
20% of the taxable amount for federal income tax if the investor chooses a
60-day rollover for the distribution.

To make a withdrawal from a Gateway IRA, an investor should contact
Shareholder Services at (800) 354-5525.

No annual maintenance fees are charged by the Trust for any account,
including IRAs, SEP-IRAs, SIMPLE IRAs, retirement, and pension or profit-sharing
plans, including 401(k) plans. The Trust reserves the right to charge annual
fees in the future. Shareholders will be notified of any change in the annual
fee arrangement.

SYSTEMATIC WITHDRAWAL PROGRAM

11
<PAGE> 105

If the value of a shareholder's account is at least $5,000, the
shareholder can request withdrawals on either a monthly or a quarterly basis in
the minimum amount of $100. The Trust makes no recommendation as to the minimum
amount to be periodically withdrawn by an investor. A sufficient number of
shares in the investor's account will be sold periodically (normally one
business day prior to each withdrawal payment date) to meet the requested
withdrawal payments.

If a shareholder participates in the Systematic Withdrawal Program, all
dividends and distributions on shares held in the account will be reinvested in
additional shares at net asset value. Since the withdrawal payments represent
the proceeds from sales of fund shares, there will be a reduction, and there
could even be an eventual depletion, of the amount invested in the Fund to the
extent that withdrawal payments exceed the dividends and distributions paid and
reinvested in shares. Withdrawals under the Systematic Withdrawal Program should
not, therefore, be considered a yield on investment. A shareholder can make
arrangements to use the Systematic Withdrawal Program (or discontinue
participation) by contacting Shareholder Services at (800) 354-5525.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------

Basic information concerning the purchase and redemption of shares is
set forth under the captions "How To Purchase Additional Shares" and "How To
Redeem Shares" in the Cincinnati Prospectus. Shares of the Fund are purchased
and redeemed at their net asset value as next determined following receipt of
the purchase order or redemption notice. Redemptions under the Systematic
Withdrawal Program and installment distributions from IRAs are effected at the
net asset value next determined on or after the date designated for the
redemption or distribution. Information as to the method of calculating the net
asset value of shares of the Fund is included in the Cincinnati Prospectus under
the caption "How Fund Shares Are Priced."

Certificates for shares of the Fund will not be issued.

There is no minimum or maximum applicable to redemption of shares of
the Fund. The Trust, however, reserves the right to redeem a shareholder's
account(s) under certain circumstances. The shareholder will receive at least 60
days' written notice prior to the redemption of the account(s).

The Trust may redeem a shareholder's account(s) in the Fund when the
aggregate value of the shareholder's account(s) falls below $800 (other than as
a result of market action). The shareholder may prevent such redemption by
increasing the value of the account(s) to $1,000 or more within the 60-day
period.

12
<PAGE> 106

The Trust also reserves the right to terminate or modify the exchange
privilege or to refuse an exchange if the exchange would adversely affect a fund
involved in the exchange.

Signature guarantees are required for all redemptions (on the date of
receipt by the Servicing Agent of all necessary documents), regardless of the
amount involved, when the proceeds are to be paid to someone other than the
registered owner(s). The signature guarantee requirement may be waived by the
Trust in certain instances. The Trust also reserves the right to require a
signature guarantee on any instructions or redemptions given to the Trust for
any reason. The purpose of signature guarantees is to prevent fraudulent
redemptions which could result in losses to the Trust, the Servicing Agent, or
shareholders. A signature guarantee will be accepted from banks, brokers,
dealers, municipal securities dealers or brokers, government securities dealers
or brokers, credit unions (if authorized by state law), national securities
exchanges, registered securities associations, clearing agencies, and savings
associations. Notary publics are unacceptable guarantors. The signature
guarantees must appear either (a) on the written request for redemption; (b) on
a stock power which should specify the total number of shares to be redeemed;
or, (c) on all stock certificates tendered for redemption.

The right of redemption may be suspended or the date of payment
postponed (a) for any periods during which the New York Stock Exchange is closed
(other than for customary weekend and holiday closings); (b) when trading in any
of the markets which the Fund normally utilizes is restricted as determined
bythe SEC; (c) if any emergency exists as defined by the SEC so that disposal of
investments or determination of the Fund's net asset value is not reasonably
practicable; or, (d) for such other periods as the SEC by order may permit for
protection of the Trust's shareholders.

The Trust has elected to be governed by Rule 18f-1 of the Investment
Company Act which obligates the Fund to redeem shares in cash with respect to
any one shareholder during any 90-day period up to the lesser of $250,000 or 1%
of the assets of the Fund. Although payment for redeemed shares generally will
be made in cash, under abnormal circumstances the Board of Trustees of the Trust
may determine to make payment in securities owned by the Fund. In such event,
the securities will be selected in such manner as the Board of Trustees deems
fair and equitable, in which case brokerage and other costs may be incurred by
such redeeming shareholders in the sale or disposition of their securities. To
date, all redemptions have been made in cash.

The Trust reserves the right to modify or terminate any purchase,
redemption, or other shareholder service procedure upon notice to shareholders.

Purchases and redemptions generally may be effected only on days when
the stock exchanges are open for trading. These exchanges are closed on
Saturdays and Sundays and the following holidays: New Year's

13
<PAGE> 107

Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving, and Christmas Day.

14
<PAGE> 108

INVESTMENT ADVISORY AND OTHER SERVICES
--------------------------------------

GATEWAY INVESTMENT ADVISERS, L.P.

Gateway Investment Advisers, L.P. (the "Adviser"), a Delaware limited
partnership, has acted as the investment adviser for the Fund since December 15,
1995. Gateway Investment Advisers, Inc. ("GIA") provided investment advisory
services to the Fund from its formation until December 15, 1995. The Adviser
became the successor in interest to the assets, business, and personnel of GIA
which was organized in June 1977. GIA is the general partner of the Adviser with
a 76% ownership interest, while Alex. Brown Investments Incorporated ("ABII") is
the sole limited partner with a 24% ownership interest. ABII is an affiliate of
Alex. Brown & Sons Incorporated, a nationally known investment banking firm and
registered broker/dealer located in Baltimore, Maryland. Walter G. Sall,
Chairman and a Trustee of the Trust, and J. Patrick Rogers, the portfolio
manager of the funds and President of the Trust, together own of record and
beneficially 99.85% of the outstanding shares of GIA and thereby control the
Adviser. Mr. Sall is Chairman and a director of GIA and Mr. Rogers is its
President and a director. The third director of GIA is Margaret-Mary V. Preston
who is employed by Alex. Brown & Sons Incorporated as a Managing Director.

INVESTMENT ADVISORY CONTRACT

The Trust has retained the Adviser under an investment advisory
contract ("Adviser Contract") to act as investment manager and in such capacity
supervise the investments of the Fund, subject to the policies and control of
the Trust's Board of Trustees. The Adviser Contract for the Fund became
effective on December 15, 1995. Services were provided by GIA under a
substantially identical contract prior to this date.

Pursuant to the Fund's Adviser Contract, the Adviser, at its sole
expense, provides the Fund with (i) investment recommendations regarding the
Fund's investments; (ii) office space, telephones, and other office equipment;
and, (iii) clerical and secretarial staff and the services, without additional
compensation, of all officers of the Trust. In addition, the Adviser has agreed
to bear (i) advertising and other marketing expenses in connection with the sale
of the shares of the Fund; (ii) expenses of printing and distributing the Fund
prospectus and related documents to prospective shareholders; and, (iii)
association membership dues (other than for the Investment Company Institute).
The Adviser Contract further provides that under certain circumstances the
Adviser may cause the Fund to pay brokerage commissions in order to enable the
Adviser to obtain brokerage and research services for its use in advising the
Fund and the Adviser's other clients, provided that the amount of commission is
determined by the Adviser, in good faith and in the best interests of the Fund,
to be reasonable in relation to the value of the brokerage and research services
provided.

The Adviser Contract provides that all expenses not specifically
assumed by the Adviser which may be incurred in the operation of the Trust and
the offering of its shares will be borne by the Trust. Such expenses will be
allocated among the funds in the Trust by direction of the Board of Trustees,
most frequently on the basis of expenses incurred by each fund, but where that
is not practicable on such basis as the Trustees determine to be appropriate.
Expenses to be borne by the Trust include:

- - fees and expenses of trustees not employed by the Adviser;

15
<PAGE> 109

- - expenses of printing and distributing prospectuses to current shareholders of
the Trust;

- - expenses pertaining to registering or qualifying the Trust or its shares
under various federal and state laws, and maintaining and updating such
registrations and qualifications;

- - interest expense, taxes, fees, and commissions (including brokerage
commissions) of every kind;

- - expenses related to repurchases and redemptions of shares;

- - charges and expenses of custodians, transfer agents, dividend disbursing
agents, and registrars;

- - expenses of valuing shares of each fund;

- - printing and mailing costs other than those expressly assumed by the Adviser;

- - auditing, accounting, and legal expenses;

- - expenses incurred in connection with the preparation of reports to
shareholders and governmental agencies;

- - expenses of shareholder meetings and proxy solicitations;

- - insurance expenses;

- - all "extraordinary expenses" which may arise, including all losses and
liabilities incurred in connection with litigation proceedings and claims,
and the legal obligations of the Trust to indemnify its officers, trustees,
and agents with respect thereto.

A majority of the Board of Trustees of the Trust and a majority of the
trustees who are not "interested persons" (as defined in the Investment Company
Act of 1940) of any party to the Adviser Contract of the Fund, voting
separately, shall determine which expenses shall be characterized as
"extraordinary expenses."

In return for the services and facilities furnished by the Adviser
under the Adviser Contract, the Fund pays the Adviser an advisory fee ("the
Advisory Fee") computed at an annual rate of 0.50% of the average daily net
asset value of the Fund.

If total expenses of the Fund for any fiscal year (including the
Adviser's compensation, but exclusive of taxes, interest, brokerage commissions,
and any "extraordinary expenses" determined as described above) exceed 2.00% of
the Fund's average daily net asset value for such year, the Adviser Contract
requires the Adviser to bear all such excess expenses up to the amount of the
Advisory Fee. Each month the Advisory Fee is determined and the Fund's expenses
are projected. If the Fund's projected expenses are in excess of the
above-stated expense limitation, the Advisory Fee paid to the Adviser will be
reduced by the amount of the excess expenses, subject to an annual adjustment;
provided, however, that the aggregate annual reduction from the Adviser to the
Fund shall not exceed the aggregate Advisory Fee paid by the Fund to the Adviser
for such year.

The Adviser Contract further provides that in the absence of willful
misfeasance, bad faith, gross negligence, or reckless disregard of its duties or
obligations thereunder, the Adviser is not liable to the Trust or any of its
shareholders for any act or omission by the Adviser. The Adviser Contract
contemplates that the Adviser may act as an investment manager or adviser for
others.

The Adviser Contract may be amended at any time by the mutual consent
of the parties thereto, provided that such consent on the part of the Trust
shall have been approved by the vote of a majority of the Trust's Board of
Trustees, including the vote cast in person by a majority of the trustees who
are not "interested persons" (as defined in the Investment Company Act of 1940)
of any party to the Adviser Contract, and by vote of the shareholders of the
Fund.

16
<PAGE> 110

The Adviser Contract may be terminated, upon 60 days' written notice
(which notice may be waived) at any time without penalty (i) by the Board of
Trustees of the Trust; (ii) by the vote of a majority of the outstanding voting
securities of the Fund; or, (iii) by the Adviser. The Adviser Contract
terminates automatically in the event of its assignment (as that term is defined
in the Investment Company Act of 1940) by the Adviser.

The Adviser Contract continues in effect until December 31, 1997, and
thereafter, provided that its continuance for the Fund for each renewal year is
specifically approved, in advance (i) by the Board of Trustees of the Trust or
by vote of a majority of the outstanding voting securities of the Fund and, (ii)
by vote of a majority of the trustees who are not parties to the Adviser
Contract or "interested persons" of any party to the Adviser Contract (other
than as Trustees of the Trust), by votes cast in person at a meeting
specifically called for such purpose.

The following table shows the Management Fee earned by the Adviser for
providing services to the Cincinnati Fund. It also shows the amount of the fees
waived by the Adviser for the year ended December 31, 1996, 1995 and for the
period from November 7, 1994 through December 31, 1994.

<TABLE>
<CAPTION>
------------------------- ------------------------
FEE AND WAIVER CINCINNATI FUND
------------------------- ------------------------

<S> <C>
1996 Fee Earned $ 37,585
1996 Fee Waived $ 26,264
----------
1996 Fee Paid $ 11,321
==========

1995 Fee Earned $ 23,429
1995 Fee Waived $ 23,429
----------
1995 Fee Paid $ 00
==========

1994 Fee Earned $ 2,191
1994 Fee Waived 2,191
----------
1994 Fee Paid $ 00
==========
------------------------- ------------------------
</TABLE>

CUSTODIAN

Star Bank, 425 Walnut Street, Cincinnati, OH 45202, acts as custodian
of the Trust's assets (the "Custodian"). The Custodian has no part in
determining the investment policies of the Fund or which securities are to be
purchased or sold by the Fund.

SHAREHOLDER SERVICING, TRANSFER, DIVIDEND DISBURSING, AND FINANCIAL SERVICING
AGENT

17
<PAGE> 111

Custodian of such deposits. The Servicing Agent opens and maintains a bookshare
account for each shareholder as set forth in the subscription application,
maintains records of each shareholder account, and sends confirmation of shares
purchased to each shareholder. The Servicing Agent also receives and processes
requests by shareholders for redemption of shares. If the shareholder request
complies with the redemption standards of the Trust, the Servicing Agent will
direct the Custodian to pay the appropriate redemption price. If the redemption
request does not comply with such standards, the Servicing Agent will promptly
notify the shareholder of the reasons for rejecting the redemption request.

The Servicing Agent, as the Shareholder Servicing Agent, will open and
maintain any plan or program for shareholders in accordance with the terms of
such plans or programs (see "SHAREHOLDER SERVICES" herein). With regard to the
Systematic Withdrawal Program, the Servicing Agent will process such Systematic
Withdrawal Program orders as are duly executed by shareholders and will direct
appropriate payments to be made by the Custodian to the shareholder. In
addition, the Servicing Agent will process such accumulation plans, group
programs and other plans or programs, for investing shares as provided in the
Fund's current prospectus.

The Fund reimburses the Servicing Agent for printing, mailing, and
compliance expenses associated with providing its services. In addition, the
Fund reimburses the Servicing Agent for other processing expenses, at a minimum
rate of $2,500 per month, up to a maximum annual rate of 0.20% of the Fund's
average net assets. The Fund also pays the Servicing Agent a monthly fee of
$4,000 per month for the financial and administrative services it provides. For
the year ended December 31, 1996, the Servicing Agent earned $636,835 in its
capacity as Servicing Agent to all four funds of the Trust.

BROKERAGE
---------

Transactions on stock exchanges involve the payment of negotiated
brokerage commissions. In the case of securities traded in the over-the-counter
market, there is generally no stated commission but the price usually includes
an undisclosed commission or mark-up.

In effecting portfolio transactions for the Fund, the Adviser is
obligated to seek best execution, which is to execute the Fund's transaction
where the most favorable combination of price and execution services are
available ("best execution"), except to the extent that it may be permitted to
pay higher brokerage commissions

18
<PAGE> 112

for brokerage and research services as described below. In seeking the best
execution, the Adviser, in the Fund's best interest, considers all relevant
factors, including:

- - price;
- - the size of the transaction;
- - the nature of the market for the security;
- - the amount of commission;
- - the timing of the transaction taking into account market prices and trends;
- - the reputation, experience, and financial stability of the broker-dealer
involved;
- - the quality of service rendered by the broker-dealer in other transactions.

Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to seeking best execution and such other
factors as the Trustees may determine, the Adviser may consider sales of shares
of the Fund as a factor in the selection of broker-dealers to execute securities
transactions for the Fund.

The Adviser Contract provides that, subject to such policies as the
Trustees may determine, the Adviser may cause the Fund to pay a broker-dealer
who provides brokerage and research services to the Adviser an amount of
commission for effecting a securities transaction for the Fund in excess of the
amount of commission which another broker-dealer would have charged for
effecting that transaction. As provided in Section 28(e) of the Securities
Exchange Act of 1934, "brokerage and research services" include:

- - advice as to the value of securities, the advisability of investing in,
purchasing, or selling securities, and the availability of securities, or
purchasers, or sellers of securities;
- - furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and performance of
accounts;
- - effecting securities transactions and performing functions incidental
thereto (such as clearance and settlement);
- - services that provide lawful and appropriate assistance to the Adviser in
the performance of its investment decision-making responsibilities.

For the years ended December 31, 1996, 1995, and 1994, the Fund paid
$3,470.28, $3,534.20, and $4,332.00, respectively, in brokerage commissions.

19
<PAGE> 113

ADDITIONAL TAX MATTERS
----------------------

The tax discussion set forth below and in the Cincinnati Prospectus is
included for general information only. Prospective investors should consult
their own tax advisers concerning the tax consequences of an investment in the
Fund.

FEDERAL TAX MATTERS

The Fund is treated as a separate association taxable as a corporation.

The Fund has met and intends to meet the requirements of the Internal
Revenue Code, applicable to regulated investment companies so as to qualify for
the special tax treatment afforded to such companies. Under Subchapter M of the
Code, a regulated investment company is not subject to federal income tax on the
portion of its net investment income and net realized capital gains which it
distributes currently to its shareholders, provided that certain distribution
requirements are met, including the requirement that at least 90% of the sum of
its net investment income and net short-term capital gains in any fiscal year is
so distributed. In addition to this distribution requirement, two of the
principal tests which the Fund must meet in each fiscal year in order to qualify
as a regulated investment company are the "90% Test" and the "30% Test." The 90%
Test requires that at least 90% of a fund's gross income must be derived from
dividends, interest, and gains from the sale or other disposition of
securities,. The 30% Test requires that no more than 30% of a fund's gross
income be derived from the sale or other disposition of securities held less
than three months. The 30% Test limits a fund's ability to deal with investments
held less than three months.

Distributions on shares of the Fund received shortly after their
purchase, although substantially in effect a return of capital, are subject to
federal income taxes.

The tax status of distributions made by the Fund during the fiscal year
will be sent to shareholders shortly after the end of such year. Each
prospective investor is advised to consult his or her own tax adviser.
Distributions of net investment income are taxable as ordinary income subject to
allowable exclusions and deductions. Distributions of capital gains are taxable
at either ordinary or long-term capital gains rates, as appropriate, except that
all such gains are normally taxable as ordinary income to the extent they are
offset by capital loss carryforwards.

STATE AND LOCAL TAX ASPECTS

20
<PAGE> 114

TRUSTEES AND OFFICERS OF THE TRUST
----------------------------------

Stefen F. Brueckner, Anthem Companies, Inc., 120 Monument Circle, Mail
Location #M4C, Indianapolis, IN 46204; Trustee of the Trust since October 1992;
Director, President, and Chief Operating Officer, Anthem Companies, Inc. since
1995. Prior thereto, Director and President of Community Mutual Insurance
Company (health insurer) since 1991, and various management positions since
1986. Director of Anthem Health and Life Insurance Company, Anthem Life
Insurance Company, and various other affiliates and subsidiaries. Age 47.

21
<PAGE> 115

R. S. (Dick) Harrison, 4040 Mt. Carmel Road, Cincinnati, OH 45144;
Director of the Company from 1977 to 1982; Trustee of the Trust since April
1996; Director/Chairman of the Board, Baldwin Piano & Organ Company from 1994 to
1997; Chairman of the Board/CEO, Baldwin Piano & Organ Company from 1983 to
1994. Prior thereto, various management positions with Baldwin Piano & Organ
Company, Cincinnati, OH. Director of Sencorp and Anderson Bank of Cincinnati, OH
and Trustee of Kenyon College. Age 65.

*Geoffrey Keenan, 400 TechneCenter Drive, Suite 220, Milford, OH 45150;
Vice President of the Trust since April 1996; Chief Operating Officer, Gateway
Investment Advisers, L.P. since December 1995; Executive Vice President and
Chief Operating Officer, Gateway Investment Advisers, Inc. since 1995; Vice
President, Gateway Investment Advisers, Inc. from 1991 to 1995. Age 38.

*Paul R. Stewart, 400 TechneCenter Drive, Suite 220, Milford, OH 45150;
Treasurer of the Trust since October 1995; Chief Financial Officer of the
Adviser since 1996; Controller of the Adviser from October 1995 to December
1996; Audit Manager and Senior Manager, Price Waterhouse from September 1992 to
1995 and from August 1988 to August 1991; accountant for Lexmark International
from August 1991 to September 1992. Age 31.

*Donna M. Squeri, 400 TechneCenter Drive, Suite 220 Milford, OH 45150;
Secretary of the Trust since October 1995; Secretary and General Counsel of the
Adviser since September 1995; in-house counsel of Bartlett & Co., a registered
investment adviser, from October 1984 to September 1993. Age 37.

*Messrs. Sall, Rogers, Keenan, Stewart and Ms. Squeri are affiliated
persons of the Trust and the Adviser as defined by the Investment Company Act of
1940. Mr. Sall is an "interested person" of the Trust as defined by the
Investment Company Act of 1940.

Messrs. Sall, Rogers, Keenan, Stewart and Ms. Squeri each of whom is
employed by the Adviser, receive no remuneration from the Trust. Each Trustee of
the Trust other than Mr. Sall receives fees as follows: (a) an annual fee of
$3,000, payable in equal quarterly installments for services during each fiscal
quarter; (b) a $500 base fee plus $100 per fund for each regular or special
meeting of the Board of Trustees attended; and, (c) $200 per fund ($1,000 per
fund for the Chairman) for each Audit and Contract Review Committee meeting
attended. The Trust also reimburses each Trustee for any reasonable and
necessary travel expenses incurred in connection with attendance at such
meetings. In addition, Trustees may receive attendance fees for service on other
committees.

The following table provides information about the compensation
received by each Trustee from the Trust for the year ended December 31, 1996.

- ------------------------------------- ----------------------------------
Total Compensation
Name of Trustee from Trust
- ------------------------------------- ----------------------------------

22
<PAGE> 116

<TABLE>
<S> <C>
Stefen F. Brueckner $ 8,200.00
Kenneth A. Drucker $ 9,800.00
Beverly S. Gordon $ 6,600.00
R. S. Harrison $ 3,300.00
Walter G. Sall $ 0.00
William H. Schneebeck $ 9,800.00
- ------------------------------------- ----------------------------------
</TABLE>

INDEPENDENT PUBLIC ACCOUNTANTS AND FINANCIAL STATEMENTS
-------------------------------------------------------

Arthur Andersen LLP, 425 Walnut Street, Cincinnati, OH 45202, will
serve as independent public accountants of the Trust. Arthur Andersen LLP
performs an annual audit of the Fund's financial statements, prepares the Fund's
tax returns, and provides financial, tax, and accounting consulting services as
requested. The financial statements and independent auditor's report required to
be included in this SAI are incorporated herein by this reference to the Fund's
Annual Report to Shareholders for the fiscal year ended December 31, 1996.

PRINCIPAL HOLDERS OF CINCINNATI FUND SHARES
-------------------------------------------

As of April 26, 1997, the Fund had 703,883.914 of its shares
outstanding, out of an unlimited number of authorized shares. As of such date,
each of the following persons or groups was known by Trust management to be the
record and/or beneficial owner (as defined below) of the indicated amounts of
the Fund's outstanding shares.

<TABLE>
<CAPTION>
----------------------------------------------------------------- ----------------------------- -------------------------
NAME AND ADDRESS OF OWNER NUMBER OF SHARES PERCENT OF CLASS
----------------------------------------------------------------- ----------------------------- -------------------------

<S> <C> <C>
Firstcinco, a common trust fund of Star Bank 200,000.000 28.41%
Attention: Joyce Lucht
P. O. Box 640229
Cincinnati, OH 45264

Trustees and officers of the Trust as a group 63,050.036 8.96%

Adviser officers & directors as a group 14,986.480 2.13%

----------------------------------------------------------------- ----------------------------- -------------------------
</TABLE>

23
<PAGE> 117

As of February 4, 1997, the Adviser held in a fiduciary capacity 76,781
(12.38%) of the outstanding shares of the Fund. The Adviser has investment and
voting power over all shares held by it in a fiduciary capacity.

24
<PAGE> 118

SCHEDULE A
----------

The beta measurements that may be used in the Cincinnati Prospectus
were calculated by using Microsoft Excel spreadsheets and the statistical
function slope available in Microsoft Excel. The SLOPE function returns the
slope of the linear regression line through data points in known y's and known
x's. The slope is the vertical distance divided by the horizontal distance
between any two points on the line, which is the rate of change along the
regression line.

The equation for beta (slope) is shown below.

n Epsilon xy - (Epsilon x)(Epsilon y)
Beta = ------------------------------------------------
n Epsilon x (2nd power) - (Epsilon x) (2nd power)

Where y = the Fund's monthly total returns in the period
x = the benchmark index's monthly total returns in the period