<PAGE> 1
GATEWAY
FUND
(LOGO)
Semi-Annual Report
1999
(LOGO)
THE GATEWAY TRUST
P. O. BOX 5211
CINCINNATI, OH 45201-5211
(800) 354-6339
<PAGE> 2
================================================================================
GATEWAY FUND
Highlights at June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------------------
Past One Three Five Ten Since Inception Dividends Price
Quarter Year Years Years Years on 12/7/77 Year to Date Per Share
------- ---- ----- ----- ----- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GATEWAY FUND 3.85% 12.66% 12.77% 12.28% 11.17% 10.63% $0.03 $22.63
S&P 500 7.05 22.76 29.11 27.87 18.78
Russell 2000 15.55 1.51 11.21 15.39 12.39
Lehman Gov't./
Corp. Bond (0.95) 2.85 7.24 7.79 8.14
U. S. Inflation (CPI) 0.60 1.88 2.02 2.37 2.98
<CAPTION>
CUMULATIVE TOTAL RETURN
----------------------------------------------------
Past One Three Five Ten Since Inception
Quarter Year Years Years Years on 12/7/77
------- ---- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
GATEWAY FUND 3.85% 12.66% 43.41% 78.41% 188.27% 784.49%
S&P 500 7.05 22.76 115.22 241.87 458.91
Russell 2000 15.55 1.51 37.55 104.64 221.45
Lehman Gov't./
Corp. Bond (0.95) 2.85 23.32 45.52 118.74
U. S. Inflation (CPI) 0.60 1.88 6.20 12.44 34.10
</TABLE>
Performance data throughout this report represents past performance. The average
annual total return figures assume the reinvestment of dividends. Your
investment return and principal value of an investment will fluctuate so that
your shares, when redeemed, may be worth more or less than the original cost.
This report must be preceded or accompanied by a current prospectus.
1
<PAGE> 3
================================================================================
GATEWAY FUND
Letter from the Chairman
- --------------------------------------------------------------------------------
Dear Shareholder:
The first half of 1999 provided excellent conditions for the continuing success
of the Gateway Fund. Financial markets responded favorably to low rates of
inflation, stable interest rates, and robust growth in corporate profits. Large
capitalization blue chip stocks set successive new highs. Importantly,
volatility in the generally rising market resulted in higher-than-average cash
flows from hedging transactions. This favorable condition helped the Fund
deliver a worthwhile combination of low risk exposure and competitive total
return.
The Fund's hedging strategy provides both current cash flow and risk reduction.
Since the bond market shares these characteristics, many investors have employed
the Gateway Fund as an alternative to similarly low-risk bond funds. In the
past, such perceptions have been handsomely rewarded.
As the Gateway Fund successfully pursued the objectives of its investors, its
assets continued to grow dramatically. From January 1, 1999, to June 30, 1999,
total assets increased from $464 million to $650 million.
Beginning May 1, 1999, your Fund began the process of changing its portfolio to
the popular S&P 500 Index from the S&P 100 Index. As the Fund's assets continue
to advance, the larger and more diversified S&P 500 Index is more appropriate to
represent the U. S. stock market and to support Gateway's time-tested hedging
strategy. By June 30, 1999, the move toward full representation in the S&P 500
was well under way.
2
<PAGE> 4
================================================================================
GATEWAY FUND
Letter from the Chairman
- --------------------------------------------------------------------------------
Fund management has focused a great deal of attention on assuring that the
millennium will pass without incident. We are pleased to report that the Fund
has received satisfactory assurances regarding Y2K from its investment adviser
and its other critical service suppliers including its custodian.
The economic environment in the U. S. remains very favorable, which is putting
financial conditions under increasing stress. Consequently, your management team
will continue to focus on risk reduction and the efficient capture of cash flows
from hedging transactions. We look forward to meeting the challenges presented
in the second half of 1999.
Cordially,
/s/ WALTER G. SALL
- ------------------
Walter G. Sall
Chairman
3
<PAGE> 5
================================================================================
GATEWAY FUND
Portfolio Manager's Report
- --------------------------------------------------------------------------------
The Gateway Fund's stated objective is to capture the majority of the higher
returns associated with equity market investments while exposing investors to
significantly less risk. To use a baseball analogy, we think of ourselves as the
leadoff hitter in a batting lineup. Our job is to consistently get on base by
hitting singles and doubles and rarely striking out. Judging by our historical
performance record, we feel we have accomplished this objective:
<TABLE>
<CAPTION>
- ------------------------------------------------------
GATEWAY FUND
AVERAGE ANNUAL TOTAL RETURNS
AS OF JUNE 30, 1999
- ------------------------------------------------------
<S> <C>
One Year 12.66%
- ------------------------------------------------------
Three Years 12.77%
- ------------------------------------------------------
Five Years 12.28%
- ------------------------------------------------------
Ten Years 11.17%
- ------------------------------------------------------
</TABLE>
In the past twelve months, the Gateway Fund delivered a total return of 12.66%
after fees and expenses. This return compares very favorably to other low-risk
assets, such as the Lehman Government/Corporate Bond Index and ninety-day U. S.
Treasury bills, which delivered returns of 2.85% and 4.61%, respectively. The
Dow Jones Industrial Average and the S&P 500 continued their spectacular
momentum (with much narrower leadership) delivering returns of 24.01% and
22.76%, respectively. Consistently adequate returns have been increasingly
difficult to achieve. However, Gateway's focus on generating regular cash flow
from hedging transactions has achieved this elusive goal of consistency.
As of May 1, 1999, the Fund began a transition program to convert its indexed
portfolio from owning the 100 common stocks included in the S&P 100 Index to
owning the 500 common stocks included in the S&P 500 Index. To avoid the
realization of significant capital gains, this transition will take place over
an extended period of time. During this transition period, the Fund's portfolio
will be a hybrid of the S&P 100 Index and the S&P 500 Index. The Fund will
continue to follow its strategy of selling index call options and buying index
put options in seeking to provide consistent returns.
4
<PAGE> 6
================================================================================
GATEWAY FUND
Portfolio Manager's Report
- --------------------------------------------------------------------------------
Selling index call options reduces the Fund's volatility, provides a steady cash
flow, and is the Fund's primary source of return. The Fund also buys index put
options that can protect the Fund from a significant market decline over a short
period of time. The value of a put option generally increases as stock prices
decrease. The combination of the indexed stock portfolio, the steady cash flow
from the sale of index call options, and the downside protection from index put
options is designed to provide the Fund with fairly consistent returns over a
wide range of fixed income and equity market environments.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
GATEWAY FUND
1999
- --------------------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER
- --------------------------------------------------------------------------------
<S> <C> <C>
CONTRIBUTION OF STOCKS
Performance of Stocks 7.10% 8.52%
Dividends Earned 0.30 0.26
INTEREST EARNED 0.05 0.05
CONTRIBUTIONS OF OPTIONS
Effect of Call Options (1.17) (2.56)
Effect of Put Options (2.17) (2.14)
EFFECT OF FEES
Fund Expenses (0.25) (0.24)
Brokerage Commissions (0.05) (0.04)
- --------------------------------------------------------------------------------
TOTAL RETURN 3.81% 3.85%
- --------------------------------------------------------------------------------
</TABLE>
I am also pleased to report that the Fund's expense ratio has continued to
decline to 0.98%. On behalf of the entire staff at Gateway, we will continue to
work diligently to retain your trust and confidence in us.
/s/ J. PATRICK ROGERS
- ----------------------
J. Patrick Rogers, CFA
Portfolio Manager
5
<PAGE> 7
================================================================================
GATEWAY FUND
Portfolio Manager's Report
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
[Insert Chart]
(Plot Points for Chart)
<TABLE>
<CAPTION>
- -------------------------------------------------------
LEHMAN GOV'T /
GATEWAY FUND S&P 500 CORP. BOND INDEX
- -------------------------------------------------------
<S> <C> <C>
$10,000.00 $10,000.00 $10,000.00
- -------------------------------------------------------
$10,303.87 $10,903.00 $10,208.00
- -------------------------------------------------------
$10,462.71 $11,116.70 $10,049.78
- -------------------------------------------------------
$10,552.74 $11,071.57 $10,094.00
- -------------------------------------------------------
$10,663.82 $10,814.48 $10,349.37
- -------------------------------------------------------
$10,920.70 $11,035.10 $10,442.52
- -------------------------------------------------------
$11,150.28 $11,299.94 $10,458.18
- -------------------------------------------------------
$10,761.57 $10,541.26 $10,314.90
- -------------------------------------------------------
$11,013.51 $10,677.03 $10,337.60
- -------------------------------------------------------
$11,373.51 $10,959.98 $10,338.63
- -------------------------------------------------------
$11,424.19 $10,686.14 $10,243.52
- -------------------------------------------------------
$11,778.93 $11,727.93 $10,540.58
- -------------------------------------------------------
$11,829.81 $11,648.77 $10,711.33
- -------------------------------------------------------
$11,880.77 $11,611.38 $10,844.16
- -------------------------------------------------------
$11,393.02 $10,561.71 $10,686.91
- -------------------------------------------------------
$11,284.21 $10,047.67 $10,775.62
- -------------------------------------------------------
$11,306.17 $10,004.87 $10,918.93
- -------------------------------------------------------
$11,965.21 $10,651.58 $11,156.96
- -------------------------------------------------------
$12,300.97 $10,948.44 $11,325.43
- -------------------------------------------------------
$12,760.91 $11,425.25 $11,452.28
- -------------------------------------------------------
$12,959.31 $12,242.38 $11,550.77
- -------------------------------------------------------
$13,085.70 $12,538.89 $11,630.47
- -------------------------------------------------------
$13,121.95 $12,568.61 $11,764.22
- -------------------------------------------------------
$13,375.69 $13,110.82 $11,819.51
- -------------------------------------------------------
$13,303.28 $12,510.21 $11,806.51
- -------------------------------------------------------
$13,567.34 $13,093.31 $11,955.27
- -------------------------------------------------------
$13,804.08 $13,403.49 $12,230.24
- -------------------------------------------------------
$13,885.53 $13,179.25 $12,485.86
- -------------------------------------------------------
</TABLE>
6
<PAGE> 8
================================================================================
GATEWAY FUND
Portfolio Manager's Report
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------
LEHMAN GOV'T /
GATEWAY FUND S&P 500 CORP. BOND INDEX
- -------------------------------------------------------
<S> <C> <C>
$14,086.87 $13,356.38 $12,596.98
- -------------------------------------------------------
$13,895.29 $12,818.25 $12,722.95
- -------------------------------------------------------
$14,490.01 $14,284.27 $13,152.22
- -------------------------------------------------------
$14,461.46 $14,018.16 $12,957.57
- -------------------------------------------------------
$14,623.14 $14,199.69 $13,026.24
- -------------------------------------------------------
$14,623.14 $13,923.51 $12,954.60
- -------------------------------------------------------
$14,795.11 $14,332.17 $13,032.33
- -------------------------------------------------------
$14,842.90 $14,402.68 $13,285.15
- -------------------------------------------------------
$14,890.69 $14,188.37 $13,480.45
- -------------------------------------------------------
$15,034.53 $14,767.96 $13,825.55
- -------------------------------------------------------
$15,034.53 $14,465.66 $13,948.59
- -------------------------------------------------------
$15,092.12 $14,635.63 $14,138.29
- -------------------------------------------------------
$15,121.09 $14,686.13 $13,921.98
- -------------------------------------------------------
$15,342.77 $15,186.19 $13,909.45
- -------------------------------------------------------
$15,235.68 $15,372.52 $14,148.69
- -------------------------------------------------------
$15,402.66 $15,501.04 $14,457.13
- -------------------------------------------------------
$15,520.49 $15,712.32 $14,757.84
- -------------------------------------------------------
$15,471.44 $16,043.85 $14,808.02
- -------------------------------------------------------
$15,500.99 $15,656.07 $14,922.04
- -------------------------------------------------------
$15,658.79 $16,074.87 $14,914.58
- -------------------------------------------------------
$15,747.58 $16,121.97 $15,253.14
- -------------------------------------------------------
$15,836.71 $16,057.16 $15,350.76
- -------------------------------------------------------
$16,054.78 $16,666.36 $15,703.83
- -------------------------------------------------------
$15,985.43 $16,538.53 $15,758.79
- -------------------------------------------------------
$16,134.73 $16,880.72 $15,823.40
- -------------------------------------------------------
$16,194.43 $16,719.84 $15,644.60
- -------------------------------------------------------
$16,363.66 $16,921.99 $15,713.43
- -------------------------------------------------------
$16,642.41 $17,497.33 $15,949.13
- -------------------------------------------------------
$16,487.55 $17,022.28 $15,601.44
- -------------------------------------------------------
$15,940.37 $16,280.11 $15,219.21
- -------------------------------------------------------
$16,085.57 $16,488.82 $15,103.54
- -------------------------------------------------------
$16,407.07 $16,759.40 $15,065.78
- -------------------------------------------------------
$16,158.17 $16,348.63 $15,031.13
- -------------------------------------------------------
$16,616.55 $16,885.52 $15,278.39
- -------------------------------------------------------
$16,887.42 $17,577.82 $15,336.45
- -------------------------------------------------------
$16,897.84 $17,148.05 $15,104.87
- -------------------------------------------------------
$17,180.34 $17,533.36 $15,094.30
- -------------------------------------------------------
</TABLE>
6
<PAGE> 9
================================================================================
GATEWAY FUND
Portfolio Manager's Report
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------
LEHMAN GOV'T /
GATEWAY FUND S&P 500 CORP. BOND INDEX
- -------------------------------------------------------
<S> <C> <C>
$16,887.37 $16,894.80 $15,061.09
- -------------------------------------------------------
$17,274.51 $17,145.35 $15,160.49
- -------------------------------------------------------
$17,564.65 $17,589.93 $15,456.12
- -------------------------------------------------------
$17,821.31 $18,275.41 $15,810.07
- -------------------------------------------------------
$17,999.86 $18,814.71 $15,916.00
- -------------------------------------------------------
$18,145.56 $19,368.81 $16,156.33
- -------------------------------------------------------
$18,257.64 $20,142.98 $16,813.89
- -------------------------------------------------------
$18,336.09 $20,610.90 $16,948.40
- -------------------------------------------------------
$18,448.65 $21,294.36 $16,882.30
- -------------------------------------------------------
$18,538.70 $21,347.80 $17,098.40
- -------------------------------------------------------
$18,741.33 $22,248.68 $17,272.80
- -------------------------------------------------------
$18,797.85 $22,169.25 $17,526.71
- -------------------------------------------------------
$19,057.83 $23,142.48 $17,815.90
- -------------------------------------------------------
$19,181.13 $23,588.21 $18,077.79
- -------------------------------------------------------
$19,430.68 $24,391.15 $18,189.88
- -------------------------------------------------------
$19,362.67 $24,617.26 $17,804.25
- -------------------------------------------------------
$19,510.22 $24,854.32 $17,654.70
- -------------------------------------------------------
$19,760.53 $25,220.67 $17,532.88
- -------------------------------------------------------
$19,931.26 $25,871.12 $17,503.07
- -------------------------------------------------------
$20,101.87 $25,969.68 $17,737.61
- -------------------------------------------------------
$19,782.46 $24,822.34 $17,778.41
- -------------------------------------------------------
$20,056.24 $25,345.85 $17,735.74
- -------------------------------------------------------
$20,523.96 $26,772.31 $18,051.44
- -------------------------------------------------------
$20,775.58 $27,510.69 $18,472.04
- -------------------------------------------------------
$21,130.22 $29,590.23 $18,811.92
- -------------------------------------------------------
$21,201.22 $29,004.04 $18,603.11
- -------------------------------------------------------
$21,556.76 $30,816.22 $18,625.43
- -------------------------------------------------------
$21,579.61 $31,057.81 $18,662.68
- -------------------------------------------------------
$21,453.37 $29,781.65 $18,440.60
- -------------------------------------------------------
$21,890.59 $31,559.61 $18,710.57
- -------------------------------------------------------
$22,063.09 $33,480.96 $18,884.58
- -------------------------------------------------------
$22,362.26 $34,980.91 $19,111.19
- -------------------------------------------------------
$22,765.68 $37,764.34 $19,695.99
- -------------------------------------------------------
$22,385.26 $35,648.78 $19,475.40
- -------------------------------------------------------
$23,065.33 $37,601.27 $19,781.16
- -------------------------------------------------------
$22,707.35 $36,343.88 $20,097.66
- -------------------------------------------------------
$23,458.06 $38,026.24 $20,204.18
- -------------------------------------------------------
</TABLE>
6
<PAGE> 10
================================================================================
GATEWAY FUND
Portfolio Manager's Report
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------
LEHMAN GOV'T /
GATEWAY FUND S&P 500 CORP. BOND INDEX
- -------------------------------------------------------
<S> <C> <C>
$23,818.38 $38,679.15 $20,416.32
- -------------------------------------------------------
$24,197.56 $39,106.94 $20,704.19
- -------------------------------------------------------
$24,551.33 $41,927.33 $20,662.78
- -------------------------------------------------------
$24,791.44 $44,074.43 $20,726.84
- -------------------------------------------------------
$25,044.57 $44,517.82 $20,830.47
- -------------------------------------------------------
$25,209.11 $43,752.56 $21,053.36
- -------------------------------------------------------
$25,588.76 $45,529.79 $21,268.10
- -------------------------------------------------------
$25,538.09 $45,044.90 $21,285.12
- -------------------------------------------------------
$24,245.35 $38,532.30 $21,700.18
- -------------------------------------------------------
$24,942.41 $41,000.68 $22,320.80
- -------------------------------------------------------
$25,805.66 $44,335.68 $22,162.33
- -------------------------------------------------------
$26,516.61 $47,022.86 $22,295.30
- -------------------------------------------------------
$26,739.61 $49,732.32 $22,348.81
- -------------------------------------------------------
$27,184.83 $51,812.13 $22,509.72
- -------------------------------------------------------
$27,222.89 $50,201.81 $21,973.99
- -------------------------------------------------------
$27,757.27 $52,210.38 $22,083.86
- -------------------------------------------------------
$28,215.82 $54,232.49 $22,139.07
- -------------------------------------------------------
$28,330.38 $52,952.06 $21,911.04
- -------------------------------------------------------
$28,827.29 $55,890.90 $21,873.79
- -------------------------------------------------------
</TABLE>
June 30, 1989 - June 30, 1999
- -----------------------------------------------
GATEWAY FUND
AVERAGE ANNUAL TOTAL RETURNS
AS OF JUNE 30, 1999
- ----------------------------------------------
One Year 12.66%
- ----------------------------------------------
Five Years 12.28%
- ----------------------------------------------
Ten Years 11.17%
- ----------------------------------------------
Performance data throughout this report represents past performance. The average
annual total return figures assume the reinvestment of dividends. Your
investment return and principal value of an investment will fluctuate so that
your shares, when redeemed, may be worth more or less than the original cost.
6
<PAGE> 11
================================================================================
GATEWAY FUND
Portfolio of Investments - June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER DURABLES 2.02%
49,694 Delphi Automotive Systems $ 922,443
131,400 Ford Motor Company 7,415,888
71,100 General Motors Corporation 4,692,600
2,000 Nike Inc. 126,625
-----------
13,157,556
-----------
CONSUMER STAPLES 7.69%
13,300 American Home Products Corporation 764,750
4,800 Anheuser Busch Companies Inc. 340,500
30,100 Avon Products, Inc. 1,671,492
2,000 Bestfoods 99,000
51,300 Campbell Soup Company 2,375,831
800 Clorox Co. 85,325
3,000 Coca-Cola Enterprises Inc. 89,250
31,800 Colgate-Palmolive Company 3,138,263
3,500 ConAgra Inc. 92,860
1,600 Costco Companies Inc. * 128,050
1,100 General Mills Inc. 88,413
11,200 Gillette Co. 459,551
41,500 Heinz (H. J.) Company 2,078,893
2,900 Kellogg Co. 95,610
2,000 Newell Rubbermaid Inc. 92,875
159,400 PepsiCo, Inc. 6,161,814
24,700 Philip Morris Companies Inc. 990,317
33,300 Ralston Purina Company 1,011,488
6,500 Sara Lee Corporation 147,672
2,900 Seagram Company Ltd. 145,635
267,700 The Coca-Cola Company 16,714,519
144,100 The Procter & Gamble Company 12,856,429
5,800 Unilever NV 404,550
-----------
50,033,087
-----------
</TABLE>
See accompanying notes to financial statements
7
<PAGE> 12
================================================================================
GATEWAY FUND
Portfolio of Investments - June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY 8.03%
36,800 Atlantic Richfield Co. $ 3,075,100
34,900 Baker Hughes Incorporated 1,166,969
6,700 Chevron Corp. 637,338
3,600 Enron Corporation 293,625
264,100 Exxon Corporation 20,376,979
50,400 Halliburton Company 2,280,600
84,700 Mobil Corporation 8,385,300
38,000 Occidental Petroleum Corporation 803,939
1,800 Phillips Petroleum Co. 90,563
132,000 Royal Dutch Petroleum 7,940,632
59,300 Schlumberger Limited 3,776,669
5,400 Texaco Inc. 337,500
24,400 The Coastal Corporation 976,000
49,000 Williams Companies Inc. 2,085,563
-----------
52,226,777
-----------
FINANCE 13.45%
1,000 Aetna Life and Casualty Company 89,438
1,900 AFLAC Incorporated 90,903
8,300 Allstate Corp. 297,763
49,100 American Express Company 6,387,606
28,900 American General Corporation 2,179,242
134,150 American International Group, Inc. 15,703,934
1,800 Aon Corporation 74,138
7,400 Associates First Capital Corp. 328,375
187,943 Bank Of America Corporation 13,778,571
7,800 Bank Of New York Co., Inc. 286,163
127,230 Bank One Corporation 7,578,137
2,100 BankBoston Corp. 107,428
4,100 Charles Schwab & Co., Inc. 450,360
8,600 Chase Manhattan Corp. 744,438
1,200 Chubb Corp. 83,475
23,700 CIGNA Corporation 2,110,042
370,125 Citigroup Inc. 17,580,938
10,500 Federal National Mortgage Assn. 717,610
1,900 Fifth Third Bancorp 126,528
10,000 First Union Corp. 469,375
</TABLE>
See accompanying notes to financial statements
8
<PAGE> 13
================================================================================
GATEWAY FUND
Portfolio of Investments - June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE (Continued)
4,900 Firstar Corporation $ 137,047
5,800 Fleet Financial Group $,013
7,000 Freddie Mac 404,688
3,500 Household International Inc. 165,813
1,300 J. P. Morgan & Co., Inc. 182,609
3,300 KeyCorp 106,013
1,800 Marsh & McLennan Companies 135,844
5,700 MBNA Corp. 174,563
3,700 Mellon Bank Corp. 134,703
38,500 Merrill Lynch & Co., Inc. 3,077,594
5,800 Morgan Stanley Dean Witter and Co. 594,138
2,300 National City Corp. 150,722
2,200 PNC Bank Corp. 126,775
1,000 Providian Financial Corp. 93,500
1,200 State Street Corporation 102,413
2,300 Suntrust Banks Inc. 159,491
26,800 The Hartford Financial Services Group, Inc. 1,563,614
1,300 United Healthcare Corporation * 81,413
83,200 U. S. Bancorp 2,821,004
1,500 Wachovia Corp. 128,297
4,300 Washington Mutual 152,113
175,600 Wells Fargo & Company 7,512,396
-----------
87,446,227
-----------
HEALTH 10.55%
15,500 Abbott Laboratories 697,985
5,100 Amgen * 310,303
32,800 Baxter International Inc. 1,986,450
2,800 Boston Scientific Corp. * 122,763
215,800 Bristol-Myers Squibb Company 15,193,680
1,900 Cardinal Health, Inc. 121,778
73,950 Columbia/HCA Healthcare Corporation 1,686,984
2,800 CVS Corp. 142,100
11,200 Eli Lilly and Company 802,200
2,200 Guidant Corp. 113,025
146,000 Johnson & Johnson 14,130,070
8,000 Mallinckrodt Inc. 291,000
</TABLE>
See accompanying notes to financial statements
9
<PAGE> 14
================================================================================
GATEWAY FUND
Portfolio of Investments - June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTH (Continued)
6,000 Medtronic Inc. $ 467,063
258,700 Merck & Co., Inc. 19,143,800
79,900 Pfizer Inc. 8,716,595
58,200 Pharmacia & Upjohn, Inc. 3,302,850
14,900 Schering Plough Corporation 788,769
8,500 Warner Lambert Co. 589,422
-----------
68,606,837
-----------
INDUSTRIAL CYCLICALS 9.08%
39,200 Alcoa Inc. 2,424,277
21,547 Allegheny Teledyne Incorporated 487,501
5,700 Allied Signal Inc. 359,278
2,600 Applied Materials Inc. * 191,994
13,600 Bethlehem Steel Corporation * 104,126
6,200 Boise Cascade Corporation 265,825
10,600 Brunswick Corporation 295,807
2,600 Caterpillar Inc. 156,000
5,500 Cendant Corp. * 112,922
10,500 Champion International Corporation 503,016
1,700 Corning Incorporated 119,106
122,300 DuPont (E. I.) de Nemours and Company 8,358,447
37,100 Eastman Kodak Company 2,514,686
3,200 First Data Corp. 156,600
8,100 Fluor Corporation 328,050
14,500 General Dynamics Corporation 992,798
112,600 Hewlett-Packard Company 11,316,300
15,100 Home Depot Inc. 972,063
23,100 Homestake Mining Company 189,854
1,800 Illinois Tool Works Inc. 147,431
1,200 Ingersoll Rand Company 77,438
11,800 International Flavors & Fragrances Inc. 522,519
35,200 International Paper Company 1,775,400
5,500 Kimberly-Clark Corp. 313,156
2,800 Lockheed Martin Corp. 104,388
2,700 Lowe's Companies Inc. 153,056
43,600 Minnesota Mining and Manufacturing 3,790,475
68,000 Monsanto Company 2,679,628
</TABLE>
See accompanying notes to financial statements
10
<PAGE> 15
================================================================================
GATEWAY FUND
Portfolio of Investments - June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL CYCLICALS (Continued)
2,000 Pitney Bowes Inc. $ 128,500
4,900 Polaroid Corporation 135,363
1,300 PPG Industries, Inc. 76,781
20,400 Rockwell International Corporation 1,239,300
3,300 Staples, Inc. * 101,991
1,100 Textron Inc. 90,544
9,500 The Black & Decker Corporation 599,391
108,552 The Boeing Company 4,793,255
25,400 The Dow Chemical Company 3,221,833
49,000 United Technologies Corporation 3,512,688
22,800 Weyerhaeuser Company 1,567,500
71,200 Xerox Corporation 4,205,250
-----------
59,084,537
-----------
RETAIL 5.01%
1,800 Albertsons Incorporated 92,869
4,500 Dayton Hudson Corp. 292,641
1,500 Federated Department Stores, Inc. * 79,453
8,750 Gap Inc. 440,508
1,900 J. C. Penney Company Inc. 92,209
56,500 Kmart Corporation * 930,487
3,500 Safeway Inc. * 173,250
43,900 Sears, Roebuck and Co. 1,956,294
22,200 Tandy Corporation 1,085,025
5,800 The Kroger Co. * 162,038
24,900 The Limited, Inc. 1,129,838
40,200 The May Department Stores Company 1,643,175
27,900 Toys "R" Us, Inc. * 577,181
10,200 Walgreen Co. 299,307
489,400 Wal-Mart Stores, Inc. 23,613,550
-----------
32,567,825
-----------
</TABLE>
See accompanying notes to financial statements
11
<PAGE> 16
================================================================================
GATEWAY FUND
Portfolio of Investments - June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES 3.94%
1,300 AMR Corporation * $ 88,725
53,800 Burlington Northern Santa Fe Corporation 1,662,759
6,200 Carnival Corp. 300,700
80,900 CBS Corp. 3,514,094
2,300 Clear Channel Communications, Inc. * 158,413
7,500 Comcast Corporation 288,281
15,500 Delta Air Lines, Inc. 893,673
33,800 FDX Corp. Holding Co. * 1,833,650
2,000 Gannett Co., Inc. 142,688
11,100 Harrah's Entertainment, Inc. * 243,506
1,000 Interpublic Group of Companies 86,563
147,000 McDonald's Corporation 6,068,351
6,100 MediaOne Group Inc. * 453,688
43,500 Norfolk Southern Corporation 1,307,719
1,200 Omnicom Group Inc. 96,000
222,500 The Walt Disney Company 6,855,781
12,400 Time Warner Inc. 909,850
1,800 Union Pacific Corp. 104,963
7,100 Viacom Inc. * 312,400
6,100 Waste Management Inc. 327,113
-----------
25,648,917
-----------
TECHNOLOGY 33.76%
63,300 America Online, Inc. * 7,026,300
6,300 Automatic Data Processing Inc. 277,200
16,000 Ceridian Corporation * 522,501
343,050 Cisco Systems, Inc. * 22,094,581
17,200 COMPAQ Computer Corporation 406,888
5,500 Computer Associates International 302,500
18,200 Computer Sciences Corporation 1,258,645
25,800 Dell Computer Corporation * 953,795
5,000 Electronic Data Systems Corp. 282,813
10,300 EMC Corporation * 566,500
4,400 Emerson Electric Co. 276,650
355,900 General Electric Company 40,038,750
8,800 Harris Corporation 344,850
14,400 Honeywell Inc. 1,669,051
</TABLE>
See accompanying notes to financial statements
12
<PAGE> 17
================================================================================
GATEWAY FUND
Portfolio of Investments - June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (Continued)
362,200 Intel Corporation $ 21,539,599
202,600 International Business Machines Corporation 26,179,729
291,240 Lucent Technologies Corp. 19,631,411
549,800 Microsoft Corporation * 49,550,725
6,100 Motorola Inc. 578,166
18,000 National Semiconductor Corporation * 454,500
70,800 Nortel Networks Corporation 6,141,900
158,387 Oracle Corporation * 5,880,117
38,600 Raytheon Company 2,714,063
1,800 Solectron Corporation * 119,925
7,800 Sun Microsystems Inc. * 537,469
5,350 Tektronix, Inc. 161,503
4,000 Tellabs Inc. * 270,375
42,300 Texas Instruments Incorporated 6,133,500
27,242 Tyco International Ltd. 2,580,330
27,600 Unisys Corporation * 1,073,814
------------
219,568,150
------------
UTILITIES 8.99%
2,000 ALLTEL Corp. 143,000
20,400 American Electric Power, Inc. 766,914
119,800 Ameritech Corporation 8,805,300
342,750 AT&T Corp. 19,129,734
168,636 Bell Atlantic Corporation 10,971,880
19,700 Bellsouth Corp. 923,438
1,700 Consolidated Edison Inc. 76,978
2,600 Duke Energy Corp. 141,456
28,300 Entergy Corporation 884,375
9,800 GTE Corporation 742,350
112,800 MCI WorldCom Inc. 9,704,331
2,100 NEXTEL Communications, Inc. * 105,459
1,600 Peco Energy Co. 67,050
2,700 PG&E Corp. 87,835
19,900 SBC Communications Inc. 1,154,200
79,900 Southern Company 2,119,851
</TABLE>
See accompanying notes to financial statements
13
<PAGE> 18
================================================================================
GATEWAY FUND
Portfolio of Investments - June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES (Continued)
9,000 Sprint Corp FON Group $ 475,313
4,500 Sprint Corp PCS Group * 257,063
2,000 Texas Utilities Co. 82,438
24,900 Unicom Corporation 960,206
5,100 US West Inc. 298,828
2,900 Vodafone Airtouch PLC 571,373
------------
58,469,372
------------
TOTAL COMMON STOCKS 102.52% 666,809,285
(cost $472,317,465) ------------
</TABLE>
See accompanying notes to financial statements
14
<PAGE> 19
================================================================================
GATEWAY FUND
Portfolio of Investments - June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Contracts Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
PUT OPTIONS 0.46%
2,349 On S&P 100 Stock Index expiring July 16, 1999 at 600 $ 51,396
2,391 On S&P 100 Stock Index expiring August 20, 1999 at 620 806,963
1,152 On S&P 500 Stock Index expiring August 20, 1999 at 1175 504,000
1,177 On S&P 500 Stock Index expiring September 17, 1999 at 1225 1,633,087
------------
(cost $13,086,339) 2,995,446
------------
REPURCHASE AGREEMENT 5.33%
3.3% repurchase agreement dated June 30, 1999
with Firstar, due July 1, 1999
(repurchase proceeds $34,654,176) fully
collateralized by U. S. Government Agencies 34,651,000
------------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENT 108.31% 704,455,731
------------
CALL OPTIONS OUTSTANDING (7.39%) **
(1,919) On S&P 100 Stock Index expiring August 20, 1999 at 640 (13,552,938)
(940) On S&P 100 Stock Index expiring August 20, 1999 at 660 (5,040,750)
(937) On S&P 100 Stock Index expiring September 17, 1999 at 660 (5,545,869)
(702) On S&P 500 Stock Index expiring July 16, 1999 at 1325 (3,738,150)
(838) On S&P 500 Stock Index expiring July 16, 1999 at 1300 (6,295,475)
(882) On S&P 500 Stock Index expiring July 16, 1999 at 1275 (8,720,775)
(455) On S&P 500 Stock Index expiring August 20, 1999 at 1275 (5,175,624)
------------
TOTAL CALL OPTIONS OUTSTANDING (48,069,581)
(premiums received $30,905,361)
OTHER ASSETS AND LIABILITIES, NET (0.92%) (5,966,135)
------------
NET ASSETS 100% $650,420,015
============
</TABLE>
* Denotes a non-income producing security
** The aggregate value of investments that covers
outstanding call options is $666,809,285.
See accompanying notes to financial statements
15
<PAGE> 20
================================================================================
GATEWAY FUND
Statement of Assets and Liabilities - June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Common stocks, at value (original cost $472,317,465) $666,809,285
Put options at value (original cost $13,086,339) 2,995,446
Repurchase agreement 34,651,000
Receivable for fund shares sold 1,696,607
Receivable for investments sold 142,044
Dividend and interest receivable 512,603
Cash 812
Other assets 26,966
------------
706,834,763
------------
LIABILITIES:
Call options outstanding, at value
(premiums received $30,905,361) 48,069,581
Payable for securities purchased 7,794,611
Payable for fund shares redeemed 344,071
Other accrued expenses and liabilities 206,485
------------
56,414,748
------------
NET ASSETS $650,420,015
============
NET ASSETS CONSIST OF:
Paid-in capital applicable to 28,744,320 shares outstanding
(unlimited number of shares authorized, no par value) $526,617,362
Undistributed net investment income 281,872
Accumulated realized loss, net (43,715,926)
Unrealized appreciation, net 167,236,707
------------
$650,420,015
============
NET ASSET VALUE, OFFERING, AND REDEMPTION
PRICE PER SHARE $22.63
======
</TABLE>
See accompanying notes to financial statements
16
<PAGE> 21
================================================================================
GATEWAY FUND
Statement of Operations - For the Six Months Ended June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income $ 3,145,741
Interest income 590,240
------------
3,735,981
------------
EXPENSES:
Investment advisory and management fees 1,851,500
Distribution fees 691,478
Registration fees 49,299
Professional fees 33,299
Custodian fees 21,337
Trustees' fees 15,492
Insurance expense 10,542
Other expenses 39,659
-------------
2,712,606
------------
NET INVESTMENT INCOME 1,023,375
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on investments:
Securities 17,186,423
Call options expired and closed (11,257,155)
Put options expired and closed (23,382,601)
------------
Net realized loss on investments (17,453,333)
------------
Increase (decrease) in unrealized appreciation of investments:
Securities 69,031,040
Call options (4,044,686)
Put options (6,205,879)
------------
Net increase in unrealized appreciation of investments 58,780,475
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 41,327,142
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 42,350,517
============
</TABLE>
See accompanying notes to financial statements
17
<PAGE> 22
================================================================================
GATEWAY FUND
Statements of Changes in Net Assets (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
-----------------------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 1,023,375 $ 2,412,810
Net realized loss on investments (17,453,333) (27,651,246)
Increase in unrealized appreciation of investments 58,780,475 66,605,828
------------- -------------
Net increase in net assets resulting from operations 42,350,517 41,367,392
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (772,688) (2,382,755)
From net realized gain on investments -- (277,798)
------------ -------------
Decrease in net assets from dividends and distributions (772,688) (2,660,553)
------------- -------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 269,235,958 302,072,143
Net asset value of shares issued in reinvestment of
dividends and distributions 736,467 2,501,190
Payments for shares redeemed (125,330,491) (134,538,098)
------------- -------------
Net increase in net assets from fund shares transactions 144,641,934 170,035,235
------------- -------------
NET INCREASE IN NET ASSETS 186,219,763 208,742,074
NET ASSETS:
Beginning of period 464,200,252 255,458,178
------------- -------------
End of period, including undistributed net investment $ 650,420,015 $ 464,200,252
============= =============
income of $281,872 and $31,185, respectively
FUND SHARE TRANSACTIONS:
Shares sold 14,467,947 15,943,506
Less shares redeemed (7,843,045) (7,498,906)
Shares issued in reinvestment of dividends and distributions 33,751 88,960
------------- -------------
NET INCREASE IN SHARES OUTSTANDING 6,658,653 8,533,560
============= =============
</TABLE>
See accompanying notes to financial statements
18
<PAGE> 23
================================================================================
GATEWAY FUND
Financial Highlights - Per share data for a share outstanding throughout each
period (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
June 30, 1999 1998 1997 1996 1995 (1) 1994
------------- ---- ---- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 21.02 $ 18.85 $ 18.48 $ 16.91 $ 15.48 $ 15.85
--------- --------- --------- --------- --------- ---------
Net investment income 0.04 0.12 0.18 0.21 0.24 0.26
Net gains on securities 1.60 2.18 2.09 1.56 1.46 0.61
--------- --------- --------- --------- --------- ---------
Total from investment operations 1.64 2.30 2.27 1.77 1.70 0.87
--------- --------- --------- --------- --------- ---------
Dividends from net investment income (0.03) (0.12) (0.18) (0.20) (0.24) (0.27)
Distributions from capital gains -- (0.01) (1.72) -- -- (0.86)
Distributions in excess of realized
capital gains -- -- -- -- (0.03) (0.11)
--------- --------- --------- --------- --------- ---------
Total distributions (0.03) (0.13) (1.90) (0.20) (0.27) (1.24)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 22.63 $ 21.02 $ 18.85 $ 18.48 $ 16.91 $ 15.48
========= ========= ========= ========= ========= =========
TOTAL RETURN 7.81%(3) 12.26% 12.35% 10.53% 11.04% 5.57%
Net assets, end of period
(thousands) $650,420 $464,200 $255,458 $194,363 $176,220 $164,651
Ratio of expenses to average net
assets 0.98%(2) 0.99% 1.07% 1.14% 1.19% 1.21%
Ratio of net investment income to
average net assets 0.37%(2) 0.66% 0.90% 1.18% 1.51% 1.54%
Portfolio turnover rate 8%(3) 12% 82% 17% 5% 4%
</TABLE>
(1) On December 15, 1995, Gateway Investment Advisers, L.P. became
investment adviser to the Fund.
(2) Annualized.
(3) Not annualized.
See accompanying notes to financial statements
19
<PAGE> 24
================================================================================
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Gateway Trust (the Trust) is a family of three diversified mutual funds. The
financial statements of the Gateway Fund, (the Fund) are included in this
report. The investment objective of the Fund is to achieve a high total return
at a reduced level of risk. The Fund attempts to achieve its investment
objective primarily by investing in stocks and by selling call options on an
Index. The Fund has undertaken a transition program to convert its indexed
portfolio from owning the 100 common stocks included in the S&P 100 Index to
owning the 500 common stocks included in the S&P 500 Index. To avoid the
realization of significant capital gains, the transition will take place over an
extended period of time. During the transition period, the Fund's portfolio will
be a hybrid of the S&P 100 Index and the S&P 500 Index, and the Fund will
continue to follow its strategy of selling index call options and buying index
put options. The financial statements of the Gateway Small Cap Index Fund and
the Cincinnati Fund are included in separate reports. The Trust is registered
under the Investment Company Act of 1940.
The following is a summary of the Fund's significant accounting policies.
INVESTMENTS VALUATION -- The Fund normally values common stocks and option
contracts (both purchased and written) at the average of the closing bid and
asked quotations. Other securities for which market quotations are not readily
available are valued at fair value as determined in good faith under procedures
adopted by the board of trustees.
INVESTMENT TRANSACTIONS, INVESTMENT INCOME, AND EXPENSES -- Investment
transactions are recorded on the trade date. Dividend income is recorded on the
ex-dividend date, and interest income is accrued daily. Capital gains and losses
are calculated on an identified cost basis. Expenses that cannot be directly
associated with a specific Trust fund are allocated under policies approved by
the board of trustees.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net
investment income are recorded on the ex-dividend date and are declared and paid
to shareholders no less than annually. Net realized capital gains, if any, are
distributed to shareholders annually.
FEDERAL INCOME TAXES -- The Fund intends to comply with the provisions of
Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and distribute substantially all of its taxable income to the
shareholders. Based on this policy, the Fund makes no provision for income
taxes. The cost of common stock for tax purposes is $472,318,258 at June 30,
1999; gross unrealized appreciation is $197,040,215 and depreciation is
$2,549,188. The Fund has a net capital loss carryforward of $43,225,339 that
expires on December 31, 2006.
Tax regulations require the Fund to assume that open option contracts are closed
each year-end and include the resulting calculated capital gain or loss in the
determination of federal taxable income.
REPURCHASE AGREEMENTS -- The Fund requires the custodian to hold sufficient
collateral to secure repurchase agreements. To reduce the chance of loss in its
repurchase transactions, the Fund enters into repurchase agreements only with
banks that have more than $1 billion in assets and are creditworthy in the
judgment of Gateway Investment Advisers, L.P. (the Adviser).
ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
20
<PAGE> 25
================================================================================
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
If total expenses for any fiscal year (excluding taxes, interest, brokerage
commissions, and expenses of an extraordinary nature) exceed 1.50% of the
average daily net assets, the Adviser has agreed to reduce its fee as necessary
to limit the Fund's expenses to that level.
Effective January 1, 1999, the Fund pays the Adviser 0.925% of the average value
of the daily net assets of the Fund minus the amount of the Fund's expenses
incurred pursuant to its Distribution Plan. Also, the Adviser receives no
separate fee for its transfer agency, fund accounting, and other services to the
Fund, and the Adviser pays the Fund's expenses of reporting to shareholders.
Each trustee of the Trust who is not affiliated with the Adviser receives an
annual retainer of $3,000, a $500 base fee plus $100 per fund for each meeting
attended, and $200 per fund ($1,000 per fund for the committee chairman) for
each committee meeting attended. The annual retainer and base fee are allocated
among the funds based on the number of shareholders in each fund.
3. SECURITIES TRANSACTIONS
For the six months ended June 30, 1999, purchases of investment securities
(excluding short-term investments) totaled $166,148,995 and proceeds from sales
totaled $45,422,589.
The Fund may write (sell) call options on stock indexes in exchange for cash
(that is, "the option premium") to enhance earnings on the portfolio securities.
However, using these contracts limits the opportunity to participate in
appreciation of the underlying portfolio beyond certain upper limits set by the
contracts. The Fund may also buy put options on stock indexes. The purchase of
put options involves the risk of loss of all or part of the cash paid for the
put options. The liability recorded upon receipt of written option premiums
increases to offset rises and decreases to offset declines in the market value
of the hedged portfolio. Similarly, the value of purchased put options increases
to offset declines and decreases to offset rises in portfolio value. For the six
months ended June 30, 1999, transactions in written options were as follows:
<TABLE>
<CAPTION>
Number of Contracts Premiums
------------------- --------
<S> <C> <C>
Outstanding at December 31, 1998 7,614 $ 21,182,640
Options written 31,302 124,444,569
Options exercised (32,243) (114,721,848)
------- ------------
Outstanding at June 30, 1999 6,673 $ 30,905,361
======= ============
</TABLE>
4. BANK LOANS
The Trust has an uncommitted $20,000,000 bank line of credit to be used as a
temporary liquidity source for meeting redemption requests. Borrowings under
this arrangement, expiring October 31, 1999, bear interest at the bank's prime
rate minus 0.5%. There are no fees associated with maintaining this facility.
For the six months ended June 30, 1999, there were no borrowings on this line of
credit.
21
<PAGE> 26
================================================================================
THE GATEWAY TRUST
- --------------------------------------------------------------------------------
Investment Adviser:
Gateway Investment Advisers, L.P.
Shareholder Servicing:
Gateway Investment Advisers, L.P.
Auditors:
Arthur Andersen LLP
Cincinnati, OH
Custodian:
Firstar Corporation
Cincinnati, OH
Trustees:
James M. Anderson
Stefen F. Brueckner
Kenneth A. Drucker
Beverly J. Fertig
R. S. Harrison
J. Patrick Rogers
Walter G. Sall
William H. Schneebeck
James E. Schwab
22
<PAGE> 27
Morningstar Awards
(Four Stars here)
Morningstar Rating(TM). Overall rating among
3,043 domestic equity funds as of 6/30/99
To
Gateway Fund
Morningstar proprietary ratings reflect historical risk-adjusted performance as
of June 30, 1999. The ratings are subject to change every month. Past
performance is no guarantee of future results. Morningstar ratings are
calculated from the Fund's three-, five-, and ten-year average annual returns in
excess of 90-day Treasury bill returns with appropriate fee adjustments and a
risk factor that reflects fund performance below 90-day Treasury bill returns.
The Gateway Fund received three stars, three stars, and four stars for the
three-, five-, and ten-year periods, respectively. The top ten percent of the
funds in a broad asset class receive five stars, the next 22.5% receive four
stars, and the next 35% receive three stars. The Fund was rated among 3,043
funds, 1,878 funds, and 748 funds in the domestic equity category for the
three-, five-, and ten-year periods respectively.
<PAGE> 28
GATEWAY SMALL CAP INDEX FUND
(STATUE OF LIBERTY LOGO)
Semi-Annual Report
1999
(Statue of Liberty Logo)
THE GATEWAY TRUST
P.O. Box 5211
CINCINNATI, OH 45201-5211
(800)354-6339
<PAGE> 29
================================================================================
GATEWAY SMALL CAP INDEX FUND
Highlights at June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------------------
Past One Three Five Ten Since Inception Dividends Price
Quarter Year Years Years Years on 6/16/93 Year to Date Per Share
------- ---- ----- ----- ----- --------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GATEWAY SMALL CAP
INDEX FUND 14.35% 2.39% 12.01% 13.69% N/A 10.84% $0.00 $12.91
Wilshire Small Cap Index 17.69 7.90 17.18 18.38 n/a
Russell 2000 15.55 1.51 11.21 15.39 12.39
U. S. Inflation (CPI) 0.60 1.88 2.02 2.37 2.98
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
--------------------------------------------------
Past One Three Five Ten Since Inception
Quarter Year Years Years Years on 6/16/93
------- ---- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
GATEWAY SMALL CAP
INDEX FUND 14.35% 2.39% 40.52% 89.94% N/A 86.26%
Wilshire Small Cap Index 17.69 7.90 60.89 132.52 n/a
Russell 2000 15.55 1.51 37.55 104.64 221.45
U. S. Inflation (CPI) 0.60 1.88 6.20 12.44 34.10
</TABLE>
Performance data throughout this report represents past performance. The average
annual total return figures assume the reinvestment of dividends. Your
investment return and principal value of an investment will fluctuate so that
your shares, when redeemed, may be worth more or less than the original cost.
This report must be preceded or accompanied by a current prospectus.
1
<PAGE> 30
================================================================================
GATEWAY SMALL CAP INDEX FUND
Letter from the Chairman
- --------------------------------------------------------------------------------
Dear Shareholder:
In the first half of 1999, the U. S. economy continued to deliver extraordinary
growth. Nevertheless, as the first quarter unfolded investors focused on large
cap multinational stocks to the continuing detriment of the small capitalization
sector. Small cap stocks, after declining in the first quarter, became such
values that they experienced a dramatic turnaround in the second quarter. The
net result was a very competitive return in the first half of the year.
Small capitalization stocks, as represented in the Gateway Small Cap Index Fund,
have lagged the general market recovery for the past four years. We believe this
lag can be attributed to investors' perceptions that small capitalization
companies often cannot generate the capital or management expertise to keep up
with a rapidly changing world. We disagree! Small companies are the wellspring
of innovation and the vehicles for the introduction of new technologies. Many of
the companies represented in this sector reflect extraordinary value for future
growth. Consequently, we have used hedging tools sparingly in order to more
fully participate in the recovery of this long-neglected group of stocks.
Your Fund continues to emphasize the stocks in the Wilshire Small Cap Index.
Portfolio manager Patrick Rogers utilizes hedging techniques to alter the risk
profile of this normally volatile list of stocks. Please review Patrick's report
beginning on page four.
2
<PAGE> 31
================================================================================
GATEWAY SMALL CAP INDEX FUND
Letter from the Chairman
- --------------------------------------------------------------------------------
Fund management has focused a great deal of attention on assuring that the
millennium will pass without incident. We are pleased to report that the Fund
has received satisfactory assurances regarding Y2K from its investment adviser
and its other critical service suppliers including its custodian.
As we move into the second half of 1999, many small cap stocks are attractively
priced. Our representation in the group and the sparing use of hedging
techniques offers the possibility of a favorable participation in the further
recovery of the small cap sector in the months ahead.
Cordially,
/s/ Walter G. Sall
- --------------------
Walter G. Sall
Chairman
3
<PAGE> 32
================================================================================
GATEWAY SMALL CAP INDEX FUND
Portfolio Manager's Report
- --------------------------------------------------------------------------------
Small capitalization stocks continue to display the higher volatility normally
associated with this sector of the market. Beginning with last summer's dramatic
decline and ending with this past quarter's rebound, the last twelve months have
clearly been the most volatile since the Fund's inception. For the six months
and twelve months ended June 30, 1999, the Gateway Small Cap Index Fund has
produced total returns of 11.97% and 2.39%, respectively. This compares
favorably to the 9.27% and 1.51% returns produced by the Russell 2000 Index over
the same periods.
The following table describes the performance of the different components for
the Fund.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
1999
- -----------------------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER
- -----------------------------------------------------------------------------------
<S> <C> <C>
CONTRIBUTION OF STOCKS
Performance of Stocks (1.20%) 15.29%
Dividends Earned 0.25 0.22
INTEREST EARNED 0.01 0.02
CONTRIBUTIONS OF OPTIONS
Effect of Put Options (0.75) (0.65)
EFFECT OF FEES
Fund Expenses (0.37) (0.38)
Brokerage Commissions (0.02) (0.15)
- -----------------------------------------------------------------------------------
TOTAL RETURN (2.08%) 14.35%
- -----------------------------------------------------------------------------------
</TABLE>
The Gateway Small Cap Index Fund invests in the 250 stocks represented in the
Wilshire Small Cap Index. The weighted average market capitalization for the
portfolio is $1.4 billion. The largest industry group as of June 30, 1999, was
Finance, Insurance, & Real Estate at 15.99%.
4
<PAGE> 33
================================================================================
GATEWAY SMALL CAP INDEX FUND
Portfolio Manager's Report
- --------------------------------------------------------------------------------
The following are the top ten stocks in the portfolio as of June 30, 1999:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
TOP TEN HOLDINGS
- -------------------------------------------------------------------------
AS A PERCENTAGE OF
STOCKS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
At Home Corporation 2.31%
Network Solutions, Inc. 1.19
BEA Systems, Inc. 1.02
Western Wireless Corporation 0.92
BroadVision, Inc. 0.91
Pentair, Inc. 0.84
Mohawk Industries, Inc. 0.82
Level One Communications, Inc. 0.80
Shared Medical Systems Corporation 0.80
Hon Industries Inc. 0.80
- -------------------------------------------------------------------------
</TABLE>
Many market strategists continue to believe that small cap stocks are
undervalued in comparison to large blue chip stocks. This past quarter may have
been the beginning of a period in which this sector of the market outperforms.
/s/ J. Patrick Rogers, CFA
- ----------------------------
J. Patrick Rogers, CFA
Portfolio Manager
5
<PAGE> 34
================================================================================
GATEWAY SMALL CAP INDEX FUND
Portfolio Manager's Report
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
[Insert Chart]
(Plot Points for Chart)
<TABLE>
<CAPTION>
- -------------------------------------------------
GATEWAY SMALL CAP
INDEX FUND RUSSELL 2000
- -------------------------------------------------
<S> <C>
$10,000.00 $10,000.00
- -------------------------------------------------
$10,100.00 $10,062.00
- -------------------------------------------------
$10,179.99 $10,200.86
- -------------------------------------------------
$10,539.96 $10,641.53
- -------------------------------------------------
$10,639.98 $10,941.62
- -------------------------------------------------
$10,579.97 $11,223.92
- -------------------------------------------------
$10,449.94 $10,858.02
- -------------------------------------------------
$10,649.96 $11,229.36
- -------------------------------------------------
$10,927.81 $11,580.84
- -------------------------------------------------
$10,866.07 $11,539.15
- -------------------------------------------------
$10,361.88 $10,931.04
- -------------------------------------------------
$10,310.39 $10,995.53
- -------------------------------------------------
$10,156.04 $10,872.38
- -------------------------------------------------
$9,806.16 $10,505.98
- -------------------------------------------------
$9,981.11 $10,678.28
- -------------------------------------------------
$10,516.19 $11,273.06
- -------------------------------------------------
$10,248.66 $11,234.73
- -------------------------------------------------
$10,330.96 $11,189.79
- -------------------------------------------------
$9,878.21 $10,737.72
- -------------------------------------------------
$10,011.97 $11,025.50
- -------------------------------------------------
$9,856.02 $10,886.57
- -------------------------------------------------
$10,271.88 $11,339.46
- -------------------------------------------------
$10,427.83 $11,533.36
- -------------------------------------------------
$10,646.16 $11,789.40
- -------------------------------------------------
$10,885.27 $11,992.18
- -------------------------------------------------
$11,249.17 $12,614.57
- -------------------------------------------------
$11,862.57 $13,341.17
- -------------------------------------------------
$12,101.69 $13,617.33
- -------------------------------------------------
$12,112.09 $13,861.08
- -------------------------------------------------
</TABLE>
6
<PAGE> 35
================================================================================
GATEWAY SMALL CAP INDEX FUND
Portfolio Manager's Report
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------
GATEWAY SMALL CAP
INDEX FUND RUSSELL 2000
- -------------------------------------------------
<S> <C>
$11,623.45 $13,241.49
- -------------------------------------------------
$11,987.26 $13,797.64
- -------------------------------------------------
$12,195.24 $14,161.89
- -------------------------------------------------
$12,173.17 $14,146.32
- -------------------------------------------------
$12,471.17 $14,587.68
- -------------------------------------------------
$12,846.43 $14,885.27
- -------------------------------------------------
$13,475.52 $15,681.63
- -------------------------------------------------
$13,861.86 $16,299.49
- -------------------------------------------------
$13,254.99 $15,629.58
- -------------------------------------------------
$12,316.93 $14,265.12
- -------------------------------------------------
$13,001.26 $15,093.92
- -------------------------------------------------
$13,520.01 $15,684.09
- -------------------------------------------------
$13,442.81 $15,442.56
- -------------------------------------------------
$14,093.98 $16,078.79
- -------------------------------------------------
$14,273.82 $16,500.06
- -------------------------------------------------
$14,640.66 $16,830.06
- -------------------------------------------------
$14,593.37 $16,421.09
- -------------------------------------------------
$14,013.43 $15,646.01
- -------------------------------------------------
$14,202.75 $15,689.82
- -------------------------------------------------
$15,196.94 $17,434.53
- -------------------------------------------------
$15,623.06 $18,182.47
- -------------------------------------------------
$16,735.58 $19,027.95
- -------------------------------------------------
$17,138.07 $19,463.69
- -------------------------------------------------
$17,978.35 $20,888.44
- -------------------------------------------------
$17,232.79 $19,971.43
- -------------------------------------------------
$17,114.40 $19,841.62
- -------------------------------------------------
$17,220.34 $20,188.85
- -------------------------------------------------
$17,105.31 $19,869.86
- -------------------------------------------------
$18,561.65 $21,338.25
- -------------------------------------------------
$19,353.68 $22,217.38
- -------------------------------------------------
$19,698.56 $22,339.58
- -------------------------------------------------
$18,523.34 $21,135.48
- -------------------------------------------------
$18,191.22 $21,179.86
- -------------------------------------------------
$16,785.95 $19,466.41
- -------------------------------------------------
$13,349.53 $15,686.03
- -------------------------------------------------
$14,205.37 $16,914.25
- -------------------------------------------------
$15,010.10 $17,604.35
- -------------------------------------------------
</TABLE>
6
<PAGE> 36
================================================================================
GATEWAY SMALL CAP INDEX FUND
Portfolio Manager's Report
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------
GATEWAY SMALL CAP
INDEX FUND RUSSELL 2000
- -------------------------------------------------
<S> <C>
$15,853.22 $18,526.82
- -------------------------------------------------
$16,635.10 $19,673.63
- -------------------------------------------------
$17,313.15 $19,935.29
- -------------------------------------------------
$16,043.57 $18,320.53
- -------------------------------------------------
$16,288.88 $18,606.33
- -------------------------------------------------
$17,717.25 $20,273.46
- -------------------------------------------------
$17,818.24 $20,569.45
- -------------------------------------------------
$18,626.12 $21,499.19
- -------------------------------------------------
</TABLE>
JUNE 16, 1993 (INCEPTION DATE) - JUNE 30, 1999
<TABLE>
<CAPTION>
----------------------------------------------
GATEWAY SMALL CAP INDEX FUND
AVERAGE ANNUAL TOTAL RETURNS
AS OF JUNE 30, 1999
----------------------------------------------
<S> <C>
One Year 2.39%
----------------------------------------------
Five Years 13.69%
----------------------------------------------
Life of Fund 10.84%
----------------------------------------------
</TABLE>
Performance data throughout this report represents past performance. The average
annual total return figures assume the reinvestment of dividends. Your
investment return and principal value of an investment will fluctuate so that
your shares, when redeemed, may be worth more or less than the original cost.
6
<PAGE> 37
================================================================================
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- --------------------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE & EQUIPMENT 1.86%
1,600 BE Aerospace, Inc. * $ 29,950
2,400 Cordant Technologies Inc. 108,000
1,600 Kaman Corporation 25,050
2,500 Teleflex Incorporated 108,672
--------
271,672
--------
APPAREL 1.87%
1,200 Brown Shoe Company 26,063
1,700 Kellwood Company 46,006
2,500 Nautica Enterprises, Inc. * 42,110
1,600 The Gymboree Corporation * 16,950
3,100 The Stride Rite Corporation 31,969
3,700 WestPoint Stevens Inc. 110,306
--------
273,404
--------
AUTOMOBILES & PARTS 1.18%
1,700 Arvin Industries, Inc. 64,388
1,600 CLARCOR 30,850
1,800 Superior Industries International, Inc. 49,275
1,100 The Standard Products Company 28,188
--------
172,701
--------
BUILDING MATERIALS & CONSTRUCTION 1.54%
3,100 Kaufman and Broad Home Corporation 76,919
3,500 Lennar Corporation 83,453
2,800 Pulte Corporation 64,575
--------
224,947
--------
BUSINESS SERVICES & SUPPLIES 2.32%
3,200 AMRESCO, INC. * 20,500
5,800 CompUSA Inc. * 42,957
3,900 Coventry Health Care, Inc. * 42,535
1,827 Information Resources, Inc. * 15,872
5,000 Medaphis Corp. * 28,672
2,700 Pittston Brink's Group 72,056
2,000 Rollins, Inc. 32,063
1,800 The Profit Recovery Group International, Inc. * 85,106
--------
339,761
--------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 38
================================================================================
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
CHEMICALS 1.89%
2,800 AgriBioTech, Inc. * $ 17,238
4,700 Airgas, Inc. * 57,869
600 Chemed Corporation 19,894
5,500 Ethyl Corporation 31,969
900 Fuller (H. B.) Company 61,509
4,800 Grace (W. R.) and Company * 88,200
--------
276,679
--------
COMPUTER SOFTWARE & PERIPHERALS 15.68%
2,800 American Management Systems, Incorporated * 89,688
6,250 At Home Corporation * 337,305
5,200 BEA Systems, Inc. * 148,688
1,500 Beyond.com Corporation * 42,891
600 Bottomline Technologies, Inc. * 31,763
1,800 BroadVision, Inc. * 132,638
3,800 Cambridge Technology Partners, Inc. * 66,619
2,200 Cerner Corporation * 46,131
3,400 CHS Electronics, Inc. * 14,875
1,200 Digital River, Inc. * 39,863
2,030 Hyperion Solutions Corp. * 36,223
2,200 IDT Corporation * 48,744
17,400 Iomega Corporation * 83,738
2,700 Macromedia, Inc. * 95,935
4,200 Mentor Graphics Corporation * 53,681
900 Network General Corp. * 20,531
2,200 Network Solutions, Inc. * 174,006
2,100 New Era of Networks, Inc. * 92,203
1,300 OneMain.com, Inc. * 30,591
2,100 Open Market, Inc. * 29,794
2,200 Polycom, Inc. * 85,525
1,500 Proxicom, Inc. * 38,297
1,900 Remedy Corporation * 50,944
3,400 S3 Incorporated * 30,919
1,800 Shared Medical Systems Corporation 117,338
2,424 Structural Dynamics Research Corporation * 44,541
5,400 Sybase, Inc. * 59,232
3,700 Symantec Corporation * 94,466
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 39
================================================================================
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMPUTER SOFTWARE & PERIPHERALS (Continued)
1,300 TheGlobe.com, Inc. * $ 25,553
493 uBID, INC. * 15,791
1,300 WorldGate Communications * 66,584
1,600 Xircom Inc. * 48,150
----------
2,293,247
----------
ELECTRONICS & COMPUTERS 10.50%
1,700 AboveNet Communications, Inc. * 68,584
5,100 Advanced Fibre Communications * 79,528
3,400 Aspect Telecommunications Corporation * 32,938
2,400 Baldor Electric Company 48,300
2,400 C Cube Microsystems, Inc. * 75,975
4,000 Cirrus Logic, Inc. * 35,250
5,900 Cypress Semiconductor Corporation * 98,456
4,100 Digital Microwave Corporation * 52,147
2,500 DSP Communications, Inc. * 72,188
4,100 Glenayre Technologies, Inc. * 14,735
1,600 Hutchinson Technology Inc. * 44,300
5,700 Integrated Device Technology, Inc. * 61,810
2,600 KMET Corporation * 59,556
2,500 Lam Research Corporation * 116,641
1,500 Lattice Semiconductor Corporation * 93,188
2,400 Level One Communications, Inc. * 117,525
1,200 Oak Industries Inc. * 52,425
6,800 Paging Network, Inc. * 33,150
4,700 Pairgain Technologies, Inc. * 54,197
2,600 Security Dynamics * 54,925
2,900 Sequent Computer Systems, Inc. * 51,385
3,000 Smart Modular Technologies, Inc. * 51,938
1,900 SpeedFam-IPEC, Inc. * 30,578
5,000 Western Wireless Corporation * 135,157
----------
1,534,876
----------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 40
================================================================================
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY 4.98%
2,100 Barrett Resources Corporation * $ 80,719
2,100 Devon Energy Corporation 75,141
8,700 Harken Energy Corporation * 14,681
3,400 Marine Drilling Companies, Inc. * 46,644
10,900 Ocean Energy Corporation * 106,275
2,100 ONEOK, Inc. 66,675
5,100 Parker Drilling Company * 16,894
2,600 Pogo Producing Company 48,425
3,300 Pride International, Inc. * 34,650
5,500 Rowan Companies, Inc. * 101,063
2,000 Southwest Gas Corporation 57,250
2,100 Tesoro Petroleum Corporation * 33,403
4,300 Varco International, Inc. * 47,031
---------
728,851
---------
FINANCE, INSURANCE, & REAL ESTATE 15.99%
5,700 20th Century Industries 107,410
1,700 Advanta Corporation 30,813
3,800 Allied Capital Corporation 91,081
4,100 Americredit Corp. * 65,728
2,600 Arcadia Financial Ltd. * 20,069
1,900 Bank United Corp. 76,297
1,500 BankNorth Group, Inc. 49,266
7,000 Catellus Development Corporation * 108,063
3,000 City National Corporation 112,500
3,100 Community First Bankshares, Inc. 73,819
3,000 Credit Acceptance Corporation * 18,281
2,300 Data Broadcasting Corporation * 24,222
2,800 Doral Financial Corporation 48,213
3,000 Finet.com, Inc. * 16,641
4,000 First Amerian Financial Corp. 71,500
1,800 Foremost Corporation of America 39,600
2,400 Frontier Insurance Group 36,975
2,500 Imperial Credit Industries, Inc. * 17,617
4,700 Independence Community Bank Corporation 62,863
3,300 Mid Atlantic Medical Services, Inc. * 32,485
600 Nationwide Financial Services, Inc. 27,131
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 41
================================================================================
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE, INSURANCE, & REAL ESTATE (Continued)
1,500 Net.Bank, Inc. * $ 56,906
5,300 Oxford Health Plans, Inc. * 82,316
1,665 Provident Bankshares Corporation 38,659
1,500 Radian Group 73,219
3,100 Raymond James Financial, Inc. 74,110
7,600 Reliance Group Holdings, Inc. 56,525
2,000 Riggs National Corporation 40,875
3,800 Rollins Truck Leasing Corp. 42,275
5,100 Roslyn Bancorp, Inc. 87,816
1,300 Silicon Valley Banchares * 32,256
2,700 St. Paul Bancorp Inc. 69,019
1,200 The Liberty Corporation 65,138
3,500 Unicapital Corporation * 21,875
2,800 UST Corp. 84,613
3,826 Valley National Bancorp 109,986
3,653 Washington Federal, Inc. 81,850
2,800 Westamerica Bancorporation 102,113
1,098 XL Capital, Ltd. 62,243
1,100 Zenith National Insurance Corp. 27,088
----------
2,339,456
----------
FOOD, BEVERAGE, & TOBACCO 1.33%
4,300 Chiquita Brands International 38,431
1,800 Dreyer's Grand Ice Cream, Inc. 27,338
2,700 Earthgrains Company 69,525
1,200 International Multifoods Corporation 27,113
2,000 Ralcorp Holdings Inc. * 32,438
----------
194,845
----------
HEALTH 5.29%
1,800 Acuson Corporation * 30,938
2,000 Ballard Medical Products 46,625
1,900 Beckman Coulter Inc. 92,566
1,464 Block Drug Company Inc. 61,259
1,900 Cephalon, Inc. * 32,656
3,500 DENTSPLY International Inc. 101,281
900 Diagnostic Products Corporation 24,834
2,000 Gilead Sciences, Inc. * 104,375
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 42
================================================================================
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTH (Continued)
1,800 Haemonetics Corporation * $ 36,056
3,500 Integrated Health Services, Inc. 27,781
4,500 NBTY, Inc. * 29,180
4,800 Perrigo Company * 37,050
5,000 PhyCor, Inc. * 37,032
4,400 Rexall Sundown, Inc. * 53,488
1,000 The West Pharmaceutical Services, Inc. 39,125
2,200 Twinlab Corp. * 18,872
--------
773,118
--------
MACHINERY & RELATED PRODUCTS 2.01%
1,500 Gerber Scientific, Inc. 33,094
2,000 Kennametal Inc. 61,000
1,500 Kulicke and Soffa Industries * 39,984
2,500 Milacron Inc. 46,328
500 NACCO Industries, Inc. 36,734
4,400 Newpark Resources Inc. * 39,325
2,200 Silicon Valley Group, Inc. * 36,919
--------
293,384
--------
MINING & METALS 0.84%
3,100 Donaldson Company, Inc. 75,950
2,400 Wyman Gordon Co. * 46,350
--------
122,300
--------
MISCELLANEOUS 2.59%
1,600 Avid Technology, Inc. * 25,650
3,000 Aztar Corporation * 27,375
4,900 Callaway Golf Company 71,510
2,700 Kimball International, Inc. 45,731
800 Marketing Services Group, Inc. * 20,850
7,600 PetsMart, Inc. * 77,663
4,000 Playtex Products, Inc. * 62,500
2,300 Station Casinos, Inc. * 46,863
--------
378,142
--------
</TABLE>
See accompanying notes to financial statements.
12
<PAGE> 43
================================================================================
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
OTHER CONSUMER DURABLES 3.57%
1,968 Albany International Corp. $ 40,836
3,400 Acclaim Entertainment * 21,622
800 Bassett Furniture Industries, Incorporated 18,050
2,700 GenCorp Inc. 68,260
4,100 Hon Industries Inc. 116,978
3,400 La-Z-Boy Incorporated 78,519
3,950 Mohawk Industries, Inc. * 120,105
400 NCH Corporation 19,813
1,500 Russ Berrie and Company, Inc. 37,922
---------
522,105
---------
OTHER INDUSTRIAL CYCLICALS 3.48%
1,900 ACX Technologies, Inc. * 30,756
2,600 Asarco Incorporated 48,750
1,100 Brush Wellman Inc. 19,938
2,000 Carlisle Companies Incorporated 96,313
6,900 Corporate Express, Inc. * 48,192
3,300 Data General Corporation * 48,056
500 MAXXAM Inc. * 32,250
2,200 Newport News Shipbuilding Inc. 64,900
2,400 Overseas Shipholding Group, Inc. 30,900
1,850 Shorewood Packaging Corporation * 33,936
1,800 The Standard Register Company 55,519
---------
509,510
---------
PAPER & FOREST PRODUCTS 1.83%
1,400 Chesapeake Corporation 52,544
3,500 Gaylord Container Corporation * 27,672
2,700 Pentair, Inc. 123,525
3,563 Wausau-Mosinee Paper Corporation 64,023
---------
267,764
---------
PRECISION INSTRUMENTS 0.33%
1,300 Credence Systems Corporation * 47,938
---------
RETAIL 3.92%
1,900 CDnow, Inc. * 33,606
6,600 Charming Shoppes, Inc. * 40,115
700 Creative Computers, Inc. * 5,556
</TABLE>
See accompanying notes to financial statements.
13
<PAGE> 44
================================================================================
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
RETAIL (Continued)
1,100 Enesco Group, Inc. $ 25,403
2,500 Fleming Companies, Inc. 29,141
2,000 Lands' End, Inc. * 97,000
2,300 Micro Warehouse, Inc. * 40,825
1,000 Navarre Corporation * 9,828
1,400 Siebert Financial Corporation 41,956
3,300 Sunglass Hut International, Inc. * 56,616
1,400 The Dress Barn, Inc. * 22,444
8,600 Venator Group, Inc. * 89,763
1,700 Whole Foods Market, Inc. * 81,653
----------
573,906
----------
SERVICES 8.17%
3,200 Airborne Freight Corporation 88,900
1,700 Alaska Air Group, Inc. * 71,028
2,000 Applebee's International, Inc. 60,500
1,700 Arnold Industries, Inc. 26,191
1,900 Banta Corporation 39,959
2,600 Bob Evans Farms, Inc. 51,594
2,184 Chris-Craft Industries, Inc. * 102,853
6,300 Extended Stay America, Inc. * 75,600
2,000 Houghton Mifflin Company 94,125
2,300 Hunt (J. B.) Transport Services, Inc. 37,447
2,000 Landry's Seafood Restaurants, Inc. * 15,875
2,400 Lone Star Steakhouse & Saloon, Inc. * 23,287
1,500 Luby's Inc. 22,453
900 New England Business Service, Inc. 27,928
1,900 Papa John's International, Inc. * 84,847
2,100 Ruby Tuesday, Inc. 39,638
1,300 Sbarro, Inc. * 35,141
2,700 Wallace Computer Services, Inc. 67,331
2,500 World Color Press, Inc. * 68,672
900 Xoom.com, Inc. * 47,053
1,700 Yellow Corporation * 29,909
5,500 Ziff Davis, Inc. * 84,735
----------
1,195,066
----------
</TABLE>
See accompanying notes to financial statements.
14
<PAGE> 45
================================================================================
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
STEEL & IRON 0.87%
3,900 AK Steel $ 87,750
1,400 Carpenter Technology Corporation 40,075
-----------
127,825
-----------
UTILITIES 4.39%
3,400 Brightpoint, Inc. * 20,719
1,100 Central Hudson Gas & Electric Corporation 46,234
900 CILCORP Inc. 56,250
1,300 Eastern Utilities Associates 37,903
3,475 MDU Resources Group, Inc. 79,491
900 Orange and Rockland Utilities, Inc. 52,509
2,700 Public Service Company of New Mexico 53,916
2,000 Sierra Pacific Resources 72,688
3,600 SkyTel Communications, Inc. * 75,038
1,550 Southern Indiana Gas & Electric Co. 43,884
3,100 Talk.com, Inc. * 34,681
2,200 UGI Corporation 44,481
2,080 UniSource Energy Corporation * 24,826
-----------
642,620
-----------
TOTAL COMMON STOCKS 96.43% $14,104,117
(cost $12,964,977)
REPURCHASE AGREEMENT 3.89%
3.3% repurchase agreement dated June 30, 1999 with
Firstar, due July 1, 1999 (repurchase proceeds $569,052)
fully collateralized by U. S. Government Agencies 569,000
------------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENT 100.32% 14,673,117
OTHER ASSETS AND LIABILITIES, NET (0.32%) (46,366)
-----------
NET ASSETS 100.00% $14,626,751
===========
</TABLE>
* Denotes a non-income producing security.
See accompanying notes to financial statements.
15
<PAGE> 46
================================================================================
GATEWAY SMALL CAP INDEX FUND
Statement of Assets and Liabilities - June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Common stocks, at value (original cost $12,964,977) $14,104,117
Repurchase agreement 569,000
Receivable for investments sold 26,949
Dividend and interest receivable 6,986
Cash 154
Other assets 12,483
-----------
14,719,689
-----------
LIABILITIES:
Payable for securities purchased 78,543
Payable for fund shares redeemed 8,445
Other accrued expenses and liabilities 5,950
-----------
92,938
-----------
NET ASSETS $14,626,751
===========
NET ASSETS CONSIST OF:
Paid-in capital applicable to 1,132,980 shares outstanding
(unlimited number of shares authorized, no par value) $12,593,574
Accumulated realized gain, net 894,037
Unrealized appreciation, net 1,139,140
-----------
$14,626,751
===========
NET ASSET VALUE, OFFERING, AND REDEMPTION
PRICE PER SHARE $12.91
======
</TABLE>
See accompanying notes to financial statements.
16
<PAGE> 47
================================================================================
GATEWAY SMALL CAP INDEX FUND
Statement of Operations - For the Six Months Ended June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Dividend income $ 64,867
Interest income 4,303
----------
69,170
----------
EXPENSES:
Investment advisory and management fees 61,471
Transfer agent and accounting fees 38,680
Registration fees 11,474
Reports to shareholders 9,854
Professional fees 6,245
Custodian fees 6,106
Trustees' fees 3,418
Other expenses 2,572
----------
139,820
Fees waived (37,622)
----------
Net operating expenses 102,198
----------
NET INVESTMENT LOSS (33,028)
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on investments:
Securities 1,138,642
Put options expired and closed (195,346)
----------
Net realized gain on investments 943,296
----------
Increase in unrealized appreciation of investments:
Securities 596,869
Put options 25,865
----------
Net increase in unrealized appreciation of investments 622,734
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 1,566,030
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,533,002
==========
</TABLE>
See accompanying notes to financial statements.
17
<PAGE> 48
================================================================================
GATEWAY SMALL CAP INDEX FUND
Statements of Changes in Net Assets (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
----------------- ------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment loss $ (33,028) $ (65,150)
Net realized gain on investments 943,296 1,567,045
Change in unrealized appreciation (depreciation) of investments 622,734 (1,997,731)
------------ ------------
Net increase (decrease) in net assets resulting from operations 1,533,002 (495,836)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gain on investments -- (1,578,731)
In excess of net realized gain on investments -- (49,259)
------------ ------------
Decrease in net assets from dividends and distributions -- (1,627,990)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 3,548,116 3,490,541
Net asset value of shares issued in reinvestment of
dividends and distributions -- 1,551,351
Payments for shares redeemed (4,581,945) (4,601,589)
------------ ------------
Net (decrease) increase in net assets from fund shares
transactions (1,033,829) 440,303
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS 499,173 (1,683,523)
NET ASSETS:
Beginning of period 14,127,578 15,811,101
------------ ------------
End of period $ 14,626,751 $ 14,127,578
============ ============
FUND SHARE TRANSACTIONS:
Shares sold 307,631 306,934
Shares issued in reinvestment of dividends and distributions -- 117,956
Less shares redeemed (399,642) (373,223)
------------ ------------
NET (DECREASE) INCREASE IN SHARES OUTSTANDING (92,011) 51,667
============ ============
</TABLE>
See accompanying notes to financial statements.
18
<PAGE> 49
================================================================================
GATEWAY SMALL CAP INDEX FUND
Financial Highlights - Per share data for a share throughout each period
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended December 31,
1999 1998 1997 1996 1995 (1) 1994
---------- ---- ---- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.53 $13.48 $12.06 $11.05 $ 9.63 $10.35
------ ------ ------ ------ ------- ------
Net investment (loss) income (0.03) (0.05) (0.02) 0.01 0.03 (0.02)
Net gains (losses) on securities 1.41 (0.41) 2.51 1.87 2.07 (0.60)
------ ------ ------ ------ ------- ------
Total from investment operations 1.38 (0.46) 2.49 1.88 2.10 (0.62)
------ ------ ------ ------ ------- ------
Dividends from net investment income -- -- -- (0.01) (0.01) --
Distributions from capital gains -- (1.45) (1.07) (0.86) (0.67) (0.10)
Distributions in excess of
realized capital gains -- (0.04) -- -- -- --
------ ------ ------ ------ ------- ------
Total distributions -- (1.49) (1.07) (0.87) (0.68) (0.10)
------ ------ ------ ------ ------- ------
Net asset value, end of period $12.91 $11.53 $13.48 $12.06 $11.05 $ 9.63
====== ====== ====== ====== ======= ======
TOTAL RETURN 11.97%(3) (3.40%) 20.64% 17.04% 21.81% (5.99%)
Net assets, end of period
(thousands) $14,627 $14,128 $15,811 $10,921 $9,418 $9,657
Ratio of expenses to average net
assets 1.50%(2) 1.50% 1.50% 1.50% 1.68% 2.00%
Ratio of net investment income (loss)
to average net assets (0.55%)(2) (0.42%) (0.19%) 0.03% 0.09% (0.14%)
Portfolio turnover rate 37%(3) 30% 32% 20% 20% 39%
</TABLE>
(1) On December 15, 1995, Gateway Investment Advisers, L.P. became
investment adviser to the Fund.
(2) Annualized.
(3) Not annualized.
See accompanying notes to financial statements.
19
<PAGE> 50
================================================================================
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Gateway Trust (the Trust) is a family of three diversified mutual funds. The
financial statements of the Gateway Small Cap Index Fund (the Fund) are included
in this report. The primary investment objective of the Fund is long-term growth
of capital. The Fund attempts to achieve its investment objective primarily by
investing in the 250 stocks included in the Wilshire Small Cap Index, and by
purchasing put or call options on an index. The financial statements of the
Gateway Fund and the Cincinnati Fund are included in separate reports. The Trust
is registered under the Investment Company Act of 1940.
The following is a summary of the Fund's significant accounting policies.
INVESTMENTS VALUATION -- The Fund normally values common stocks and option
contracts at the average of the closing bid and asked quotations. Other
securities for which market quotations are not readily available are valued at
fair value as determined in good faith under procedures adopted by the board of
trustees.
INVESTMENT TRANSACTIONS, INVESTMENT INCOME, AND EXPENSES -- Investment
transactions are recorded on the trade date. Dividend income is recorded on the
ex-dividend date, and interest income is accrued daily. Capital gains and losses
are calculated on an identified cost basis. Expenses that cannot be directly
associated with a specific Trust fund are allocated under policies approved by
the board of trustees.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from
net investment income and net realized capital gains are recorded on the
ex-dividend date and are declared and paid to shareholders annually.
FEDERAL INCOME TAXES -- The Fund intends to comply with the provisions of
Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and distribute substantially all taxable income to the shareholders.
Based on this policy, the Fund makes no provision for income taxes.
The cost of common stock for tax purposes is $13,132,815 at June 30, 1999; gross
unrealized appreciation of common stocks is $3,117,147 and gross unrealized
depreciation totaled $2,145,845, based on the cost of investments.
REPURCHASE AGREEMENTS -- The Fund requires the custodian to hold sufficient
collateral to secure repurchase agreements. To reduce the chance of loss in its
repurchase transactions, the Fund enters into repurchase agreements only with
banks that have more than $1 billion in assets and are creditworthy in the
judgment of Gateway Investment Advisers, L.P. (the Adviser).
ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
RECLASSIFICATION OF CAPITAL ACCOUNTS -- During the six-month period ended June
30, 1999, the Fund reclassified $33,028 from undistributed net investment income
to paid-in capital. This reclassification, which had no impact on total net
assets, is due to tax regulations not permitting the carryforward of net
investment losses to future periods.
20
<PAGE> 51
================================================================================
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
The Fund pays the Adviser an investment advisory and management fee computed at
an annual rate of 0.90% of the first $50 million of the average daily net assets
of the Fund, 0.70% of the next $50 million, and 0.60% of all such assets over
$100 million.
If total expenses for any fiscal year (excluding taxes, interest, brokerage
commissions, and expenses of an extraordinary nature) exceed 2.00% of the Fund's
average daily net assets, the advisory contract requires the Adviser to waive
some or all of its advisory fee as necessary to limit the Fund's expenses to the
stated level. For 1999, the Adviser committed to waive some or all of its
advisory fee if the Fund's expense ratio exceeded 1.50%. Any waiver, however,
would not exceed the aggregate advisory fee paid by the Fund for the applicable
year. As a result, for the six months ended June 30, 1999, the Adviser waived
advisory fees of $37,622.
The Adviser provides shareholder, transfer, dividend disbursing, accounting, and
administrative services to the Fund. The Fund compensates the Adviser for these
services at a fixed rate of $4,000 per month, plus the greater of $2,500 per
month or an annual rate of 0.20% of the Fund's average net assets.
Each trustee of the Trust who is not affiliated with the Adviser receives an
annual retainer of $3,000, a $500 base fee plus $100 per fund for each meeting
attended, and $200 per fund ($1,000 per fund for the committee chairman) for
each committee meeting attended. The annual retainer and base fee are allocated
among the funds based on the number of shareholders in each fund.
At June 30, 1999, the Adviser held in a fiduciary capacity, 36% of the Fund's
outstanding shares.
3. SECURITIES TRANSACTIONS
For the six months ended June 30, 1999, purchases of investment securities
(excluding short-term investments) totaled $5,015,690, and proceeds from sales
totaled $6,516,613.
The Fund may buy put or call options on stock indexes. The purchase of options
involves the risk of loss of all or part of the cash paid for the options. The
value of purchased puts increases to offset declines and decreases to offset
rises in the portfolio value. The value of purchased calls increases as the
value of the underlying index increases.
21
<PAGE> 52
================================================================================
THE GATEWAY TRUST
- --------------------------------------------------------------------------------
Investment Adviser:
Gateway Investment Advisers, L.P.
Shareholder Servicing:
Gateway Investment Advisers, L.P.
Auditors:
Arthur Andersen LLP
Cincinnati, OH
Custodian:
Firstar Corporation
Cincinnati, OH
Trustees:
James M. Anderson
Stefen F. Brueckner
Kenneth A. Drucker
Beverly J. Fertig
R. S. HARRISON
J. Patrick Rogers
Walter G. Sall
William H. Schneebeck
James E. Schwab
22
<PAGE> 53
AFFORDABILITY
$1,000 Minimum Initial Investment
$500 Minimum Initial IRA Investment
$100 Minimum Additional Investment
No Annual Account Charges
No-Fee IRA Accounts
CONVENIENCE
Free Telephone Exchanges Between Gateway Funds
Automatic Investment Program
Systematic Withdrawal Program
Telephone Redemptions
FLEXIBILITY
Available for numerous investment options:
Individuals
IRAs
Trusts
Pension Plans
Gifts to Minors
<PAGE> 54
CINCINNATI FUND(R)
SEMI-ANNUAL REPORT
1999
CINCINNATI FUND(R)
P.O. BOX 5211 CINCINNATI, OHIO 45201-5211
(800) 354-5525
<PAGE> 55
CINCINNATI FUND(R)
- -------------------------- Highlights at June 30, 1999 -------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
-----------------------------------------------
Past One Three Five Ten Since Inception Price
Quarter Year Years Years Years on 11/7/94 Per Share
------- ---- ----- ----- ----- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CINCINNATI FUND(R) 3.88% 3.39% 16.31% N/A N/A 19.91% $20.86
S&P 500 7.05 22.76 29.11 27.87 18.78
Russell 2000 15.55 1.51 11.21 15.39 12.39
Lehman Gov't./
Corp. Bond (0.95) 2.85 7.24 7.79 8.14
U. S. Inflation (CPI) 0.60 1.88 2.02 2.37 2.98
<CAPTION>
CUMULATIVE TOTAL RETURN
--------------------------------------------------
Past One Three Five Ten Since Inception
Quarter Year Years Years Years on 11/7/94
------- ---- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
CINCINNATI FUND(R) 3.88% 3.39% 57.36% N/A N/A 132.40%
S&P 500 7.05 22.76 115.22 241.87 458.91
Russell 2000 15.55 1.51 37.55 104.64 221.45
Lehman Gov't./
Corp. Bond (0.95) 2.85 23.32 45.52 118.74
U. S. Inflation (CPI) 0.60 1.88 6.20 12.44 34.10
</TABLE>
Performance data throughout this report represents past performance.
The average annual total return figures assume the reinvestment of dividends.
Your investment return and principal value of an investment will fluctuate
so that your shares, when redeemed, may be worth more or less than the
original cost.
This report must be preceded by or accompanied by a prospectus.
- --------------------------------------------------------------------------------
1 CINCINNATI FUND
<PAGE> 56
CINCINNATI FUND(R)
- --------------------------- Letter from the Chairman ---------------------------
Dear Shareholder:
Our Cincinnati business community, as represented by our publicly
traded companies, continued to post gains, some to new records, in both sales
and earnings in the first half of 1999. This favorable business environment
translated into increased valuations for the Fund's portfolio for the first six
months.
The Fund's portfolio benefited particularly from the resurgence in
local small capitalization companies that occurred in the second quarter. Many
of these companies have been depressed due to their low multinational exposure
and consequent lack of investor interest. Until the second quarter of 1999,
values associated with excellent sales and earnings progress had gone
unrecognized. We have been and continue to be pleased to represent the full
range of public companies doing business in Cincinnati in the Fund's portfolio.
Fund management has focused a great deal of attention on assuring that
the millennium will pass without incident. We are pleased to report that the
Fund has received satisfactory assurances regarding Y2K from its investment
adviser and its other critical service suppliers including its custodian.
As we move into the second half of 1999, the Cincinnati business
community remains robust. Since many of our local companies have not yet been
fully valued by the marketplace, there is a substantial opportunity to
participate in market growth during the remainder of the year. We look forward
to the balance of the millennium with enthusiasm.
Cordially,
/s/ WALTER G. SALL
------------------
Walter G. Sall
Chairman
- --------------------------------------------------------------------------------
CINCINNATI FUND 2
<PAGE> 57
CINCINNATI FUND(R)
- ------------------ Portfolio Manager's Report - June 30, 1999 ------------------
Thus far into 1999, our local "blue chip" stocks, which dominate
holdings in the Cincinnati Fund(R), have produced lackluster returns.
Fundamentally, these companies remain solid. In fact, many of them continue to
produce record profitability. The declines experienced by many of the stocks can
be attributed simply to profit taking. Because these particular stocks have been
the catalyst for outstanding gains for the portfolio since the Fund's inception
in November 1994, the recent weakness should not be a cause for concern.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Top Ten Holdings
As of June 30, 1999
- ------------------------------------------------------------------------------------------------------
As a Percentage Performance (excluding dividends)
of Net Assets Stocks From 12/31/98 - 6/30/99
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
4.43% The Kroger Co. (7.64%)
4.42 The Procter & Gamble Company (2.26)
4.01 Cincinnati Bell Inc. 46.69
4.00 General Electric Company 10.78
3.98 Fifth Third Bancorp (6.66)
3.77 Comair Holdings, Inc. (7.50)
3.68 Federated Department Stores, Inc. 21.52
3.63 Firstar Corporation (9.68)
3.42 Cinergy Corp. (6.91)
3.41 The E. W. Scripps Company (4.40)
- ------------------------------------------------------------------------------------------------------
</TABLE>
For the six months and one year ended June 30, 1999, the Cincinnati
Fund has produced a total return of 0.10% and 3.39%, respectively. This compares
to 12.38% and 22.76% produced by the S&P 500 Index and 9.27% and 1.51% produced
by the Russell 2000 Index over the same time periods.
- --------------------------------------------------------------------------------
3 CINCINNATI FUND
<PAGE> 58
CINCINNATI FUND(R)
- ------------------ Portfolio Manager's Report - June 30, 1999 ------------------
In order to fully participate in the broad array of sectors represented
in the Cincinnati business climate, it is our objective to maintain a
diversified mix of industry groups. The Finance sector at 22.15% remains our
highest weighting.
------------------------------------------------------
PLOT POINTS FOR PIE CHART
------------------------------------------------------
------------------------------------------------------
Technology 12.17%
------------------------------------------------------
Finance 22.15%
------------------------------------------------------
Industrial Cyclicals 10.39%
------------------------------------------------------
Consumer Staples 7.33%
------------------------------------------------------
Services 14.07%
------------------------------------------------------
Consumer Durables 7.37%
------------------------------------------------------
Retail 8.63%
------------------------------------------------------
Health 5.11%
------------------------------------------------------
Utilities 10.31%
------------------------------------------------------
Energy 0.99%
------------------------------------------------------
As a percentage of net assets
Even though this year has not continued the Fund's excellent
performance record, we believe the Cincinnati Fund continues to offer an
excellent way to participate in the long-term growth potential of our local
economy.
/s/ J. PATRICK ROGERS
---------------------
J. Patrick Rogers, CFA
Portfolio Manager
- --------------------------------------------------------------------------------
CINCINNATI FUND 4
<PAGE> 59
CINCINNATI FUND(R)
- -------------------------- Portfolio Manager's Report --------------------------
GROWTH OF A $10,000 INVESTMENT
[Insert Chart]
(Plot Points for Chart)
<TABLE>
<CAPTION>
- ------------------------------------------------------------
CINCINNATI FUND S&P 500 RUSSELL 2000
- ------------------------------------------------------------
<S> <C> <C>
$10,000.00 $10,000.00 $10,000.00
- ------------------------------------------------------------
$9,780.00 $9,635.80 $9,596.00
- ------------------------------------------------------------
$9,910.00 $9,778.70 $9,853.17
- ------------------------------------------------------------
$10,070.00 $10,032.26 $9,729.02
- ------------------------------------------------------------
$10,350.00 $10,423.22 $10,133.75
- ------------------------------------------------------------
$10,620.00 $10,730.81 $10,307.04
- ------------------------------------------------------------
$10,930.00 $11,046.83 $10,535.85
- ------------------------------------------------------------
$11,290.03 $11,488.37 $10,717.07
- ------------------------------------------------------------
$11,650.07 $11,755.25 $11,273.29
- ------------------------------------------------------------
$12,150.08 $12,145.05 $11,922.63
- ------------------------------------------------------------
$12,310.08 $12,175.53 $12,169.43
- ------------------------------------------------------------
$12,739.70 $12,689.34 $12,387.26
- ------------------------------------------------------------
$12,689.70 $12,644.04 $11,833.55
- ------------------------------------------------------------
$13,169.37 $13,199.11 $12,330.56
- ------------------------------------------------------------
$13,409.71 $13,453.33 $12,656.08
- ------------------------------------------------------------
$13,460.81 $13,911.28 $12,642.16
- ------------------------------------------------------------
$13,920.77 $14,040.24 $13,036.60
- ------------------------------------------------------------
$14,544.14 $14,175.45 $13,302.54
- ------------------------------------------------------------
$14,554.32 $14,384.39 $14,014.23
- ------------------------------------------------------------
$14,922.25 $14,755.36 $14,566.39
- ------------------------------------------------------------
$14,769.00 $14,811.58 $13,967.71
- ------------------------------------------------------------
$13,930.86 $14,157.21 $12,748.33
- ------------------------------------------------------------
$14,544.10 $14,455.78 $13,489.01
- ------------------------------------------------------------
$15,157.28 $15,269.35 $14,016.43
- ------------------------------------------------------------
$14,871.11 $15,690.48 $13,800.58
- ------------------------------------------------------------
$15,923.83 $16,876.53 $14,369.16
- ------------------------------------------------------------
$16,088.33 $16,542.20 $14,745.63
- ------------------------------------------------------------
$16,454.01 $17,575.76 $15,040.54
- ------------------------------------------------------------
$16,621.19 $17,713.55 $14,675.06
- ------------------------------------------------------------
$16,276.46 $16,985.70 $13,982.40
- ------------------------------------------------------------
$16,516.70 $17,999.75 $14,021.55
- ------------------------------------------------------------
$17,185.30 $19,095.57 $15,580.74
- ------------------------------------------------------------
$17,822.53 $19,951.06 $16,249.16
- ------------------------------------------------------------
$18,731.48 $21,538.56 $17,004.74
- ------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
5 CINCINNATI FUND
<PAGE> 60
CINCINNATI FUND(R)
- -------------------------- Portfolio Manager's Report --------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------
CINCINNATI FUND S&P 500 RUSSELL 2000
- ------------------------------------------------------------
<S> <C> <C>
$18,303.09 $20,331.97 $17,394.15
- ------------------------------------------------------------
$19,316.53 $21,445.55 $18,667.40
- ------------------------------------------------------------
$19,159.88 $20,728.41 $17,847.90
- ------------------------------------------------------------
$19,891.21 $21,687.93 $17,731.89
- ------------------------------------------------------------
$20,750.91 $22,060.31 $18,042.20
- ------------------------------------------------------------
$20,608.76 $22,304.30 $17,757.13
- ------------------------------------------------------------
$21,723.90 $23,912.89 $19,069.39
- ------------------------------------------------------------
$22,882.87 $25,137.47 $19,855.05
- ------------------------------------------------------------
$22,642.37 $25,390.35 $19,964.25
- ------------------------------------------------------------
$22,008.16 $24,953.89 $18,888.18
- ------------------------------------------------------------
$22,478.26 $25,967.52 $18,927.84
- ------------------------------------------------------------
$21,691.07 $25,690.96 $17,396.58
- ------------------------------------------------------------
$18,673.62 $21,976.56 $14,018.16
- ------------------------------------------------------------
$19,362.49 $23,384.38 $15,115.78
- ------------------------------------------------------------
$20,860.38 $25,286.47 $15,732.51
- ------------------------------------------------------------
$21,669.34 $26,819.08 $16,556.89
- ------------------------------------------------------------
$23,218.48 $28,364.40 $17,581.76
- ------------------------------------------------------------
$23,118.18 $29,550.59 $17,815.60
- ------------------------------------------------------------
$22,583.45 $28,632.16 $16,372.54
- ------------------------------------------------------------
$22,371.85 $29,777.73 $16,627.95
- ------------------------------------------------------------
$23,474.78 $30,931.03 $18,117.81
- ------------------------------------------------------------
$23,296.61 $30,200.74 $18,382.33
- ------------------------------------------------------------
$23,240.93 $31,876.89 $19,213.22
- ------------------------------------------------------------
</TABLE>
November 7, 1994 (inception date) - June 30, 1999
- ----------------------------------------------
CINCINNATI FUND
AVERAGE ANNUAL TOTAL RETURNS
AS OF JUNE 30, 1999
- ----------------------------------------------
One Year 3.39%
- ----------------------------------------------
Life of Fund 19.91%
- ----------------------------------------------
Performance data throughout this report represents past performance.
The average annual total return figures assume the reinvestment of dividends.
Your investment return and principal value of an investment will fluctuate
so that your shares, when redeemed, may be worth more or less than the
original cost.
- --------------------------------------------------------------------------------
5 CINCINNATI FUND
<PAGE> 61
CINCINNATI FUND(R)
- ------------- Portfolio of Investments - June 30, 1999 (unaudited) ------------
<TABLE>
<CAPTION>
Shares Common Stocks Values
------ ------------- ------
<S> <C> <C>
CONSUMER DURABLES 7.37%
12,100 Cintas Corporation $ 812,591
9,500 Ford Motor Company 536,156
6,600 General Motors Corporation 435,600
----------
1,784,347
----------
CONSUMER STAPLES 7.33%
26,000 Chiquita Brands International 232,375
7,300 Heinz (H. J.) Company 365,685
4,600 Sara Lee Corporation 104,506
12,000 The Procter & Gamble Company 1,070,626
----------
1,773,192
----------
ENERGY 0.99%
6,000 Ashland, Inc. 240,750
----------
FINANCE 22.15%
2,500 American Annuity Group, Inc. 60,391
8,800 American Financial Group, Inc. 299,750
2,376 Bank One Corporation 141,521
15,429 Cincinnati Financial Corporation 578,588
19,000 Duke Realty Investments, Inc. 428,688
14,448 Fifth Third Bancorp 962,147
1,863 First Financial Bancorp 43,198
31,400 Firstar Corporation 878,220
2,327 Huntington Bancshares Incorporated 81,445
21,804 KeyCorp 700,454
4,500 Ohio Casualty Corporation 162,281
1,800 PNC Bank Corp. 103,725
17,925 Provident Financial Group, Inc. 773,577
6,000 The Midland Company 146,625
----------
5,360,610
----------
HEALTH 5.11%
5,500 Duramed Pharmaceuticals, Inc. * 85,766
7,600 Johnson & Johnson 744,800
5,000 Kendle International, Inc. 80,313
34,522 Meridian Diagnostics, Inc. 250,285
6,000 Omnicare, Inc. 75,375
----------
1,236,539
----------
</TABLE>
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
CINCINNATI FUND 6
<PAGE> 62
CINCINNATI FUND(R)
- ------------- Portfolio of Investments - June 30, 1999 (unaudited) ------------
<TABLE>
<CAPTION>
Shares Common Stocks Values
------ ------------- ------
<S> <C> <C>
INDUSTRIAL CYCLICALS 10.39%
34,000 AK Steel $ 765,000
14,700 Chemed Corporation 487,398
21,000 LSI Industries Inc. 509,250
27,500 Milacron Inc. 509,611
4,300 Multi-Color Corporation * 26,606
23,500 NS Group, Inc. * 217,375
----------
2,515,240
----------
RETAIL 8.63%
16,800 Federated Department Stores, Inc. * 889,876
38,400 The Kroger Co. * 1,072,800
3,400 Winn-Dixie Stores, Inc. 125,269
----------
2,087,945
----------
SERVICES 14.07%
7,522 Clear Channel Communications, Inc. 518,108
43,931 Comair Holdings, Inc. 912,971
10,600 Delta Air Lines, Inc. 611,157
9,390 Frisch's Restaurants, Inc. 96,248
2,400 Gannett Co., Inc. 171,225
5,000 General Cable Corporation 79,688
12,800 Gibson Greetings, Inc. * 81,800
4,000 Harte-Hanks, Inc. 108,375
17,300 The E.W. Scripps Company 825,535
----------
3,405,107
----------
TECHNOLOGY 12.17%
39,000 Convergys Corporation 750,750
8,600 General Electric Company 967,500
4,000 Interlott Technologies, Inc. * 23,500
39,425 Pomeroy Computer Resources, Inc. * 550,720
35,600 Structural Dynamics Research Corporation * 654,150
----------
2,946,620
----------
</TABLE>
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
7 CINCINNATI FUND
<PAGE> 63
CINCINNATI FUND(R)
- ------------- Portfolio of Investments - June 30, 1999 (unaudited) ------------
<TABLE>
<CAPTION>
Shares Common Stocks Values
------ ------------- ------
<S> <C> <C>
UTILITIES 10.31%
12,450 AT&T Corp. $ 694,866
39,000 Cincinnati Bell Inc. 971,346
25,900 Cinergy Corp. 827,996
-----------
2,494,208
-----------
TOTAL COMMON STOCKS 98.52% 23,844,558
(cost $18,061,179)
REPURCHASE AGREEMENT 1.09%
3.3% repurchase agreement dated June 30, 1999 with
Firstar, due July 1, 1999 (repurchase proceeds $264,024)
fully collateralized by U. S. Government Agencies 264,000
-----------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENT 99.61% 24,108,558
OTHER ASSETS AND LIABILITIES, NET 0.39% 95,229
-----------
NET ASSETS 100.00% $24,203,787
===========
* Denotes a non-income producing security.
</TABLE>
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
CINCINNATI FUND 8
<PAGE> 64
CINCINNATI FUND(R)
- ------- Statement of Assets and Liabilities - June 30, 1999 (unaudited) --------
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Common stocks, at value (original cost $18,061,179) $23,844,558
Repurchase agreement 264,000
Receivable for investments sold 303,462
Dividend and interest receivable 30,942
Cash 833
Receivable for fund shares sold 513
Other assets 8,025
-----------
24,452,333
-----------
LIABILITIES:
Payable for securities purchased 224,892
Payable for fund shares redeemed 9,067
Other accrued expenses and liabilities 14,587
-----------
248,546
-----------
NET ASSETS $24,203,787
===========
NET ASSETS CONSIST OF:
Paid-in capital applicable to 1,160,306 shares outstanding
(unlimited number of shares authorized, no par value) $17,119,426
Undistributed net investment income 53,749
Accumulated realized gain, net 1,247,233
Unrealized appreciation, net 5,783,379
-----------
$24,203,787
===========
NET ASSET VALUE, OFFERING, AND
REDEMPTION PRICE PER SHARE $20.86
======
</TABLE>
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
9 CINCINNATI FUND
<PAGE> 65
CINCINNATI FUND(R)
- -------------------------- Statement of Operations ----------------------------
For the Six Months Ended June 30, 1999 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividend income $ 214,353
Interest income 1,817
----------
216,170
----------
EXPENSES:
Investment advisory and management fees 62,375
Transfer agent and accounting fees 48,753
Reports to shareholders 24,566
Professional fees 7,868
Trustees' fees 6,085
Custodian fees 4,596
Registration fees 1,889
Other expenses 6,289
----------
162,421
----------
NET INVESTMENT INCOME 53,749
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gains 1,241,158
Decrease in unrealized appreciation of investments 1,292,196)
----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (51,038)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,711
==========
</TABLE>
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
CINCINNATI FUND 10
<PAGE> 66
CINCINNATI FUND(R)
- ---------------- Statements of Changes in Net Assets (unaudited) --------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 53,749 $ 71,252
Net realized gain on investments 1,241,158 422,739
Change in unrealized (depreciation) appreciation of investments (1,292,196) 1,932,515
------------ ------------
Net increase in net assets resulting from operations 2,711 2,426,506
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- (72,381)
From net realized gain on investments -- (425,541)
------------ ------------
Decrease in net assets from dividends and distributions -- (497,922)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 1,060,904 10,152,314
Net asset value of shares issued in reinvestment
of dividends and distributions -- 407,597
Payments for shares redeemed (3,404,078) (3,471,511)
------------ ------------
Net (decrease) increase in net assets from fund shares transactions (2,343,174) 7,088,400
------------ ------------
NET (DECREASE) INCREASE IN NET ASSETS (2,340,463) 9,016,984
NET ASSETS:
Beginning of period 26,544,250 17,527,266
------------ ------------
End of period $ 24,203,787 $ 26,544,250
============ ============
FUND SHARE TRANSACTIONS:
Shares sold 243,079 529,125
Shares issued in reinvestment of dividends and distributions -- 16,071
Less shares redeemed (356,425) (194,873)
------------ ------------
NET(DECREASE) INCREASE IN SHARES OUTSTANDING (113,346) 350,323
============ ============
</TABLE>
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
11 CINCINNATI FUND
<PAGE> 67
CINCINNATI FUND(R)
- ----------------------------- Financial Highlights ----------------------------
Per share data for a share outstanding throughout each period (unaudited)
<TABLE>
<CAPTION>
Six Months For the Period From
Ended Year Ended December 31, November 7, 1994 to
June 30, 1999 1998 1997 1996 1995(3) December 31, 1994
------------- ---- ---- ----- ----- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $20.84 $18.98 $15.40 $13.12 $ 9.91 $10.00
------ ------ ------ ------ ------- ------
Net investment income 0.04 0.06 0.07 0.02 0.04 0.03
Net gains (losses) on securities (0.02) 2.20 4.39 2.60 3.46 (0.12)
------ ------ ------ ------ ------- ------
Total from investment operations 0.02 2.26 4.46 2.62 3.50 (0.09)
------ ------ ------ ------ ------- ------
Dividends from net
investment income -- (0.06) (0.07) (0.02) (0.07) --
Distributions from capital gains -- (0.34) (0.81) (0.32) (0.22) --
------ ------ ------ ------ ------- ------
Total distributions -- (0.40) (0.88) (0.34) (0.29) --
------ ------ ------ ------ ------- ------
Net asset value, end of period $20.86 $20.84 $18.98 $15.40 $13.12 $ 9.91
====== ====== ====== ====== ====== =======
TOTAL RETURN 0.10% (2) 11.89% 28.98% 19.98% 35.31% (0.90%)(2)
Net assets, end of period
(thousands) $24,204 $26,544 $17,527 $8,984 $ 5,877 $3,225
Ratio of expenses to average
net assets (1) 1.30% 1.37% 1.69% 2.00% 1.98% 1.96%
Ratio of net investment income
to average net assets (1) 0.43% 0.30% 0.50% 0.13% 0.46% 2.24%
Portfolio turnover rate 1% (2) 8% 17% 10% 9% 0%(2)
</TABLE>
(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 0.01% in 1997, 0.02% in 1995, and 0.04% in 1994 had the
Adviser not voluntarily waived fees or 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.
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
CINCINNATI FUND 12
<PAGE> 68
CINCINNATI FUND(R)
- ---------- Notes to Financial Statements - June 30, 1999 (unaudited) ----------
1. SIGNIFICANT ACCOUNTING POLICIES
The Gateway Trust (the Trust) is a family of three diversified mutual funds.
The financial statements of the Cincinnati Fund (the Fund) are included in
this report. The investment objective of the Fund is to achieve capital
appreciation through investment in the common stock of companies with an
important presence in the Greater Cincinnati Area. The financial statements of
the Gateway Fund and the Gateway Small Cap Index Fund are included in separate
reports. The Trust is registered under the Investment Company Act of 1940.
The following is a summary of the Fund's significant accounting policies.
INVESTMENTS VALUATION -- The Fund normally values common stocks at the average
of the closing bid and asked quotations. Other securities for which market
quotations are not readily available are valued at fair value as determined in
good faith under procedures adopted by the board of trustees.
INVESTMENT TRANSACTIONS, INVESTMENT INCOME, AND EXPENSES -- Investment
transactions are re-corded on the trade date. Dividend income is recorded on
the ex-dividend date, and interest income is accrued daily. Capital gains and
losses are calculated on an identified cost basis. Expenses that cannot be
directly associated with a specific Trust fund are allocated under policies
approved by the board of trustees.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS TO SHAREHOLDERS -- Distributions
from net investment income and net realized capital gains are recorded on the
ex-dividend date and are declared and paid to shareholders annually.
FEDERAL INCOME TAXES -- The Fund intends to comply with the provisions of
Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and distribute substantially all of its taxable income to
shareholders. Based on this policy, the Fund makes no provision for income
taxes. The cost of investments is the same for financial reporting and tax
purposes.
At June 30, 1999, gross unrealized appreciation of common stocks totaled
$6,803,105 and gross unrealized depreciation totaled $1,019,726, based on the
cost of investments.
REPURCHASE AGREEMENTS -- The Fund requires the custodian to hold sufficient
collateral to secure repurchase agreements. To reduce the chance of loss in
its repurchase transactions, the Fund enters into repurchase agreements only
with banks that have more than $1 billion in assets and are creditworthy in
the judgment of Gateway Investment Advisers, L.P. (the Adviser).
- --------------------------------------------------------------------------------
13 CINCINNATI FUND
<PAGE> 69
CINCINNATI FUND(R)
- ----------- Notes to Financial Statements - June 30, 1999 (unaudited) ---------
ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
2. TRANSACTIONS WITH AFFILIATES
The Fund pays the Adviser an investment advisory and management fee computed
at an annual rate of 0.50% of its average daily net assets.
If total expenses for any fiscal year (excluding taxes, interest, brokerage
commissions, and expenses of an extraordinary nature) exceed 2.00% of average
daily net assets, the advisory contract requires the Adviser to reduce its fee
as necessary to limit the Fund's expenses to this level.
The Adviser provides shareholder, transfer, dividend disbursing, accounting,
and administrative services to the Fund. The Fund compensates the Adviser for
these services at a fixed rate of $4,000 per month, plus the greater of $2,500
per month or an annual rate of 0.20% of the Fund's average net assets.
Each trustee of the Trust who is not affiliated with the Adviser receives an
annual retainer of $3,000, a $500 base fee plus $100 per fund for each meeting
attended, and $200 per fund ($1,000 for the committee chairman) for each
committee meeting attended. The annual retainer and base fee are allocated
among the funds based on the number of shareholders in each fund.
3. SECURITIES TRANSACTIONS
For the six months ended June 30, 1999, purchases of investment securities
(excluding short-term investments) totaled $224,892, and proceeds from sales
totaled $2,741,750.
- --------------------------------------------------------------------------------
CINCINNATI FUND 14
<PAGE> 70
AFFORDABILITY
$1,000 Minimum Initial Investment
$500 Minimum Initial IRA Investment
$100 Minimum Additional Investment
No Annual Account Charges
No-Fee IRA Accounts
CONVENIENCE
Free Telephone Exchanges Between Gateway Funds
Automatic Investment Program
Systematic Withdrawal Program
Telephone Redemptions
FLEXIBILITY
The Cincinnati Fund(R) is available for numerous investment options:
Individuals
IRAs
Trusts
Pension Plans
Gifts to Minors
