<PAGE> 1
GATEWAY
FUND
[LOGO]
Annual Report
1999
[THE GATEWAY TRUST LOGO]
THE GATEWAY TRUST
P. O. BOX 5211
CINCINNATI, OH 45201-5211
(800) 354-6339
<PAGE> 2
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GATEWAY FUND
HIGHLIGHTS AT DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------
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 4.79% 12.97% 12.52% 11.82% 10.47% 10.62% $0.073 $23.67
S&P 500 14.88 21.04 27.56 28.55 18.21
Russell 2000 18.45 21.26 13.08 16.69 13.40
Lehman Gov't./
Corp. Bond (0.41) (1.76) 5.68 7.69 7.70
U. S. Inflation (CPI) 0.54 2.69 2.18 2.48 2.98
CUMULATIVE TOTAL RETURN
----------------------------------------------------
Past One Three Five Ten Since Inception
Quarter Year Years Years Years on 12/7/77
------- ---- ----- ----- ----- ----------
GATEWAY FUND 4.79% 12.97% 42.48% 74.85% 170.74% 826.82%
S&P 500 14.88 21.04 107.55 251.10 432.72
Russell 2000 18.45 21.26 44.58 116.37 251.56
Lehman Gov't./
Corp. Bond (0.41) (1.76) 18.02 44.82 109.93
U. S. Inflation (CPI) 0.54 2.69 6.67 13.02 34.17
</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 past year was excellent for the Gateway Fund and its rapidly increasing
shareholder base. Consistent with its results in prior years, the Fund's hedging
strategy produced worthwhile returns while maintaining a very low-risk profile.
Since it is perceived that the bond market shares these investment
characteristics, many investors have employed the Gateway Fund as an alternative
to the low-risk sector of the bond market. As in past years, the substitution of
the Fund for bonds was amply rewarded in 1999.
Gateway's successful pursuit of its dual objectives of low risk and competitive
returns has resulted in accelerating its total growth. In 1999, net assets
increased from $464 million to $922 million. Such asset growth resulted in a
further modest reduction in the Fund's expense ratio.
Many important initiatives were implemented to pave the way for further success
at the onset of the new millennium. We are pleased to report that the conversion
of the Fund's portfolio from the S&P 100 Index to the S&P 500 Index is nearly
complete. Transactions designed to accomplish the transition did not give rise
to a taxable capital gains distribution in 1999. The size and diversity of the
S&P 500 makes it the ideal vehicle for the investment of the Fund's
rapidly-growing asset base. Expansion in the liquidity of S&P 500 index
contracts on the Chicago Board Options Exchange facilitates efficient execution
of Gateway's time-tested, low-risk hedging strategy.
2
<PAGE> 4
- --------------------------------------------------------------------------------
GATEWAY FUND
LETTER FROM THE CHAIRMAN
- --------------------------------------------------------------------------------
In the past year, investors faced the old challenges of risk and volatility with
a plethora of new technology-inspired tools. Gateway's portfolio manager,
Patrick Rogers, and his investment team used these tools to deliver the benefits
of the hedged strategy to all our shareholders.
As we move into the new century, Gateway's staff will strive to deliver both
excellent service and superior risk-adjusted returns. We look forward to 2000
and beyond with enthusiasm.
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. Over the past five years, the Gateway Fund has
delivered on those expectations:
- ------------------------------------------------------
GATEWAY FUND
- ------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------------------
1995 11.04%
- ------------------------------------------------------
1996 10.53%
- ------------------------------------------------------
1997 12.35%
- ------------------------------------------------------
1998 12.26%
- ------------------------------------------------------
1999 12.97%
- ------------------------------------------------------
The strategy we employ to produce these results is best explained by using a
real estate rental analogy. Like the real estate investor who is attracted to a
high-quality apartment building, we invest in a blue-chip portfolio of stocks we
intend to own for the long term. However, like the real estate owner who is not
dependent on the rise and fall of the value of the building, our total return is
not dependent on the rise and fall of the stock market. Rather, it is our
ability to generate a cash flow into the Fund by charging "rent" to other
investors who gain the benefits of our portfolio. We do this through the
continuous sale of index call options on 100% of the Fund's portfolio. In
addition, we use a portion of this cash flow to purchase index put options on
the portfolio. These put options help offset the loss in value of the stocks in
the Fund in the event the market has a dramatic decline. Therefore, our total
return is dependent upon the net cash flow we bring into the Fund.
This past year is an excellent example of how this strategy works. When the
stock market rises for a given quarter, the Gateway Fund will earn the net
difference between selling the index call options versus the payment for the
index put options. Thus, the Fund's returns in the first and second quarters of
1999 were nearly identical. In the third quarter, the cash flow from the sale of
index calls and the increasing value of the index put options replaced the
entire decline in our portfolio of stocks. Since the market was positive for the
fourth quarter, we were back to earning our net cash flow for the last three
months of the year. Interestingly, the Fund produced a higher rate of return in
the last quarter than earlier in the year. Why? Because we had more cash flow to
earn due to an increase in market volatility coming out of the difficult third
quarter.
4
<PAGE> 6
- -------------------------------------------------------------------------------
GATEWAY FUND
PORTFOLIO MANAGER'S REPORT
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
First Qtr. Second Qtr. Third Qtr. Fourth Qtr.
1999 1999 1999 1999
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gateway Fund 3.81% 3.85% 0.00% 4.79%
- ---------------------------------------------------------------------------------------------------
S&P 500 4.98 7.05 (6.25) 14.88
- ---------------------------------------------------------------------------------------------------
Lehman Gov't./Corp.
Bond Index (1.19) (0.95) 0.79 (0.41)
- ---------------------------------------------------------------------------------------------------
</TABLE>
For the twelve months ended December 31, 1999, the Gateway Fund produced a total
return of 12.97%. The table above includes the Lehman Gov't./Corp. Bond Index,
which produced a -1.76% for the year. Due to the risk profile of the Gateway
Fund, many investors use the Fund as an alternative to bonds.
As Walter Sall mentioned in the preceding Letter from the Chairman, the Gateway
Fund has grown substantially over the past few years. We appreciate your support
and confidence in us.
/s/J. Patrick Rogers, CPA
J. Patrick Rogers, CFA
Portfolio Manager
5
<PAGE> 7
- -------------------------------------------------------------------------------
GATEWAY FUND
PORTFOLIO MANAGER'S REPORT
- -------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT [GRAPH]
December 31, 1989 - December 31, 1999
- ----------------------------------------------------
GATEWAY FUND S&P 500 LEHMAN
GOV'T./CORP.
BOND INDEX
- ----------------------------------------------------
$10,000.00 $10,000.00 $10,000.00
- ----------------------------------------------------
$9,651.39 $9,328.60 $9,863.00
- ----------------------------------------------------
$9,877.34 $9,448.75 $9,884.70
- ----------------------------------------------------
$10,200.20 $9,699.14 $9,885.69
- ----------------------------------------------------
$10,245.65 $9,456.81 $9,794.74
- ----------------------------------------------------
$10,563.80 $10,378.76 $10,078.79
- ----------------------------------------------------
$10,609.43 $10,308.70 $10,242.06
- ----------------------------------------------------
$10,655.13 $10,275.61 $10,369.06
- ----------------------------------------------------
$10,217.70 $9,346.69 $10,218.71
- ----------------------------------------------------
$10,120.11 $8,891.79 $10,303.53
- ----------------------------------------------------
$10,139.81 $8,853.91 $10,440.56
- ----------------------------------------------------
$10,730.86 $9,426.23 $10,668.17
- ----------------------------------------------------
$11,031.99 $9,688.94 $10,829.26
- ----------------------------------------------------
$11,444.47 $10,110.89 $10,950.55
- ----------------------------------------------------
$11,622.41 $10,834.02 $11,044.72
- ----------------------------------------------------
$11,735.76 $11,096.42 $11,120.93
- ----------------------------------------------------
$11,768.27 $11,122.72 $11,248.82
- ----------------------------------------------------
$11,995.83 $11,602.55 $11,301.69
- ----------------------------------------------------
$11,930.89 $11,071.04 $11,289.26
- ----------------------------------------------------
$12,167.71 $11,587.06 $11,431.50
- ----------------------------------------------------
$12,380.03 $11,861.56 $11,694.43
- ----------------------------------------------------
$12,453.08 $11,663.11 $11,938.84
- ----------------------------------------------------
$12,633.65 $11,819.87 $12,045.10
- ----------------------------------------------------
$12,461.83 $11,343.64 $12,165.55
- ----------------------------------------------------
$12,995.19 $12,641.02 $12,576.01
- ----------------------------------------------------
$12,969.59 $12,405.52 $12,389.89
- ----------------------------------------------------
$13,114.59 $12,566.17 $12,455.55
- ----------------------------------------------------
$13,114.59 $12,321.75 $12,387.05
- ----------------------------------------------------
$13,268.82 $12,683.40 $12,461.37
- ----------------------------------------------------
$13,311.68 $12,745.80 $12,703.12
- ----------------------------------------------------
$13,354.54 $12,556.14 $12,889.86
- ----------------------------------------------------
$13,483.55 $13,069.06 $13,219.84
- ----------------------------------------------------
$13,483.55 $12,801.54 $13,337.49
- ----------------------------------------------------
$13,535.19 $12,951.96 $13,518.88
- ----------------------------------------------------
$13,561.18 $12,996.64 $13,312.05
- ----------------------------------------------------
$13,759.98 $13,439.18 $13,300.06
- ----------------------------------------------------
$13,663.94 $13,604.07 $13,528.83
- ----------------------------------------------------
$13,813.70 $13,717.80 $13,823.75
- ----------------------------------------------------
$13,919.37 $13,904.78 $14,111.29
- ----------------------------------------------------
$13,875.39 $14,198.17 $14,159.27
- ----------------------------------------------------
$13,901.89 $13,855.00 $14,268.29
- ----------------------------------------------------
$14,043.41 $14,225.62 $14,261.16
- ----------------------------------------------------
$14,123.04 $14,267.30 $14,584.89
- ----------------------------------------------------
$14,202.97 $14,209.95 $14,678.23
- ----------------------------------------------------
$14,398.55 $14,749.07 $15,015.83
- ----------------------------------------------------
$14,336.34 $14,635.95 $15,068.38
- ----------------------------------------------------
$14,470.25 $14,938.76 $15,130.17
- ----------------------------------------------------
$14,523.79 $14,796.40 $14,959.19
- ----------------------------------------------------
$14,675.56 $14,975.29 $15,025.01
- ----------------------------------------------------
$14,925.55 $15,484.45 $15,250.39
- ----------------------------------------------------
$14,786.67 $15,064.04 $14,917.93
- ----------------------------------------------------
$14,295.94 $14,407.25 $14,552.44
- ----------------------------------------------------
$14,426.16 $14,591.95 $14,441.84
- ----------------------------------------------------
$14,714.49 $14,831.41 $14,405.74
- ----------------------------------------------------
$14,491.26 $14,467.89 $14,372.61
- ----------------------------------------------------
$14,902.36 $14,943.01 $14,609.04
- ----------------------------------------------------
$15,145.29 $15,555.68 $14,664.55
- ----------------------------------------------------
$15,154.63 $15,175.34 $14,443.11
- ----------------------------------------------------
$15,407.99 $15,516.33 $14,433.00
- ----------------------------------------------------
$15,145.25 $14,951.23 $14,401.25
- ----------------------------------------------------
$15,492.44 $15,172.95 $14,496.30
- ----------------------------------------------------
$15,752.65 $15,566.39 $14,778.98
- ----------------------------------------------------
$15,982.84 $16,173.01 $15,117.42
- ----------------------------------------------------
$16,142.96 $16,650.28 $15,218.70
- ----------------------------------------------------
$16,273.64 $17,140.63 $15,448.51
- ----------------------------------------------------
$16,374.15 $17,825.74 $16,077.26
- ----------------------------------------------------
$16,444.51 $18,239.83 $16,205.88
- ----------------------------------------------------
$16,545.46 $18,844.66 $16,142.68
- ----------------------------------------------------
$16,626.22 $18,891.96 $16,349.30
- ----------------------------------------------------
$16,807.95 $19,689.20 $16,516.06
- ----------------------------------------------------
$16,858.64 $19,618.91 $16,758.85
- ----------------------------------------------------
$17,091.79 $20,480.18 $17,035.37
- ----------------------------------------------------
$17,202.38 $20,874.63 $17,285.79
- ----------------------------------------------------
$17,426.18 $21,585.20 $17,392.96
- ----------------------------------------------------
$17,365.19 $21,785.30 $17,024.23
- ----------------------------------------------------
$17,497.51 $21,995.09 $16,881.23
- ----------------------------------------------------
$17,722.01 $22,319.30 $16,764.75
- ----------------------------------------------------
$17,875.12 $22,894.91 $16,736.25
- ----------------------------------------------------
$18,028.13 $22,982.14 $16,960.51
- ----------------------------------------------------
$17,741.67 $21,966.79 $16,999.52
- ----------------------------------------------------
$17,987.21 $22,430.07 $16,958.72
- ----------------------------------------------------
$18,406.67 $23,692.43 $17,260.59
- ----------------------------------------------------
$18,632.34 $24,345.87 $17,662.76
- ----------------------------------------------------
$18,950.39 $26,186.18 $17,987.76
- ----------------------------------------------------
$19,014.07 $25,667.43 $17,788.09
- ----------------------------------------------------
$19,332.93 $27,271.13 $17,809.44
- ----------------------------------------------------
$19,353.43 $27,484.93 $17,845.06
- ----------------------------------------------------
$19,240.21 $26,355.58 $17,632.70
- ----------------------------------------------------
$19,632.32 $27,929.01 $17,890.84
- ----------------------------------------------------
$19,787.03 $29,629.32 $18,057.23
- ----------------------------------------------------
$20,055.34 $30,956.72 $18,273.92
- ----------------------------------------------------
$20,417.14 $33,419.94 $18,833.10
- ----------------------------------------------------
$20,075.97 $31,547.76 $18,622.17
- ----------------------------------------------------
$20,685.87 $33,275.63 $18,914.53
- ----------------------------------------------------
$20,364.83 $32,162.89 $19,217.17
- ----------------------------------------------------
$21,038.09 $33,651.71 $19,319.02
- ----------------------------------------------------
$21,361.24 $34,229.51 $19,521.87
- ----------------------------------------------------
$21,701.31 $34,608.09 $19,797.13
- ----------------------------------------------------
$22,018.58 $37,104.03 $19,757.53
- ----------------------------------------------------
$22,233.92 $39,004.12 $19,818.78
- ----------------------------------------------------
$22,460.93 $39,396.51 $19,917.87
- ----------------------------------------------------
$22,608.50 $38,719.28 $20,130.99
- ----------------------------------------------------
$22,948.98 $40,292.06 $20,336.33
- ----------------------------------------------------
$22,903.54 $39,862.95 $20,352.60
- ----------------------------------------------------
$21,744.17 $34,099.56 $20,749.48
- ----------------------------------------------------
$22,369.31 $36,283.98 $21,342.91
- ----------------------------------------------------
$23,143.51 $39,235.32 $21,191.38
- ----------------------------------------------------
$23,781.12 $41,613.37 $21,318.52
- ----------------------------------------------------
$23,981.12 $44,011.13 $21,369.69
- ----------------------------------------------------
$24,380.40 $45,851.68 $21,523.55
- ----------------------------------------------------
$24,414.53 $44,426.61 $21,011.29
- ----------------------------------------------------
$24,893.79 $46,204.12 $21,116.35
- ----------------------------------------------------
$25,305.04 $47,993.60 $21,169.14
- ----------------------------------------------------
$25,407.77 $46,860.47 $20,951.10
- ----------------------------------------------------
$25,853.43 $49,461.23 $20,915.48
- ----------------------------------------------------
$25,682.02 $47,918.04 $20,827.63
- ----------------------------------------------------
$25,819.16 $47,678.45 $20,838.05
- ----------------------------------------------------
$25,853.50 $46,371.58 $21,079.77
- ----------------------------------------------------
$26,470.36 $49,305.98 $21,134.58
- ----------------------------------------------------
$26,755.98 $50,308.37 $21,121.90
- ----------------------------------------------------
$27,090.70 $53,271.53 $20,993.05
- ----------------------------------------------------
[Chart Inserted Here]
- -----------------------------------------------
GATEWAY FUND
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999
- -----------------------------------------------
One Year 12.97%
- -----------------------------------------------
Five Years 11.82%
- -----------------------------------------------
Ten Years 10.47%
- -----------------------------------------------
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> 8
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER DURABLES - 1.76%
1,600 Cooper Tire and Rubber Company $ 24,900
800 Cummins Engine Company Inc. 38,625
4,800 Dana Corporation 143,850
49,693 Delphi Automotive Systems Corporation 784,220
2,100 Eaton Corporation 152,381
3,300 Ecolab Inc. 129,216
131,400 Ford Motor Company 7,021,688
4,800 Fortune Brands, Inc. 158,850
71,100 General Motors Corporation 5,172,525
5,200 Genuine Parts Company 129,350
4,400 Goodyear Tire and Rubber Company 123,888
4,100 Hasbro, Inc. 78,156
1,900 ITT Industries Indiana 63,591
800 Jostens, Inc. 19,475
2,300 Leggett & Platt Incorporated 49,234
1,300 Liz Claiborne, Inc. 48,831
13,500 Mattel Inc. 177,188
12,600 Newell Rubbermaid Inc. 365,007
12,600 Nike, Inc. 624,882
1,200 Pep Boys - Manny, Moe & Jack 10,950
1,200 Reebok International Ltd. * 9,788
800 Russell Corporation 13,350
400 Springs Industries Inc. 15,975
10,300 The Clorox Company 518,541
1,300 Timken Company 26,528
4,400 TRW Inc. 228,663
1,200 Tupperware Corp. 20,325
2,500 V. F. Corporation 75,000
-------------
16,224,977
CONSUMER STAPLES - 7.00% -------------
800 Adolph Coors Company 41,950
1,200 Alberto-Culver Company 30,825
62,100 American Home Products Corporation 2,451,012
22,500 Anheuser Busch Companies Inc. 1,594,687
23,055 Archer Daniels Midland Company 280,264
</TABLE>
See accompanying notes to financial statements
7
<PAGE> 9
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER STAPLES (Continued)
30,100 Avon Products, Inc. $ 992,361
14,400 Barrick Gold Corporation 256,051
12,500 Bestfoods 657,031
1,800 Brown Forman Corporation 103,050
51,300 Campbell Soup Company 1,983,068
18,900 Coca-Cola Enterprises Inc. 380,954
63,600 Colgate-Palmolive Company 4,132,016
21,700 ConAgra, Inc. 488,929
9,900 Costco Wholesale Corporation * 903,066
13,500 General Mills, Inc. 482,625
51,900 Gillette Co. 2,137,631
41,500 Heinz (H. J.) Company 1,650,924
5,200 Hershey Foods Corporation 246,838
18,000 Kellogg Co. 555,188
9,200 Nabisco Group Holdings 97,463
159,400 PepsiCo, Inc. 5,623,839
114,100 Philip Morris Companies Inc. 2,649,265
5,100 Quaker Oats Company 334,847
33,300 Ralston Purina Company 928,238
40,200 Sara Lee Corporation 888,171
12,300 SYSCO Corporation 486,619
267,700 The Coca-Cola Company 15,601,904
144,100 The Procter & Gamble Company 15,787,956
19,000 The Seagram Company Ltd. 853,813
27,300 Unilever NV 1,486,998
4,400 UST Inc. 110,825
4,400 Wm. Wrigley Jr. Company 364,788
------------------
64,583,196
ENERGY - 6.70% ------------------
2,400 Amerada Hess Corporation 136,275
2,600 Anadarko Petroleum Corp. 88,725
3,000 Apache Corporation 110,719
1,600 Ashland Inc. 52,700
36,800 Atlantic Richfield Company 3,183,200
34,900 Baker Hughes Incorporated 735,081
</TABLE>
See accompanying notes to financial statements
8
<PAGE> 10
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY (Continued)
7,000 Burlington Resources Inc. $ 231,437
31,200 Chevron Corp. 2,701,726
2,000 Columbia Gas System, Inc. 126,438
18,000 Conoco, Inc. 447,750
3,200 Consolidated Natural Gas Company 207,700
33,800 Enron Corporation 1,499,875
375,916 Exxon Mobil Corporation 30,296,499
50,400 Halliburton Company 2,027,027
1,100 Helmerich and Payne, Inc. 23,925
2,300 Kerr McGee Corporation 142,600
1,200 McDermott International, Inc. 10,838
38,000 Occidental Petroleum Corporation 821,750
800 ONEOK, Inc. 20,050
11,300 Phillips Petroleum Co. 531,454
1,700 Rowan Companies, Inc. * 36,762
164,600 Royal Dutch Petroleum 9,958,300
59,300 Schlumberger Limited 3,331,919
6,200 Sempra Energy 107,532
2,000 Sunoco Inc. 47,063
25,900 Texaco Inc. 1,406,694
24,400 The Coastal Corporation 864,675
2,200 Tosco Corporation 59,881
11,504 Transocean Sedco Forex Inc. 387,189
5,500 Union Pacific Resources Group, Inc. 69,953
9,100 Unocal Corporation 305,704
11,400 USX Marathon Group 282,507
49,000 Williams Companies Inc. 1,499,096
------------------
61,753,044
FINANCE - 12.80% ------------------
6,300 Aetna Life and Casualty Company 351,619
11,800 Aflac Inc. 556,812
38,300 Allstate Corp. 920,399
49,100 American Express Company 8,159,806
28,900 American General Corporation 2,192,787
167,687 American International Group, Inc. 18,125,925
</TABLE>
See accompanying notes to financial statements
9
<PAGE> 11
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE (Continued)
10,100 Amsouth Bancorporation $ 194,741
11,400 Aon Corporation 455,644
34,600 Associates First Capital Corp. 951,500
187,943 Bank of America Corporation 9,438,272
35,700 Bank of New York Company, Inc. 1,430,231
127,230 Bank One Corporation 4,079,312
11,900 BB&T Corp. 326,506
7,400 Capital One Financial Corp. 356,357
38,700 Charles Schwab & Co., Inc. 1,485,113
39,900 Chase Manhattan Corp. 3,102,225
7,600 Chubb Corp. 427,738
23,700 Cigna Corp. 1,910,073
4,800 Cincinnati Financial Corporation 149,250
370,125 Citigroup Inc. 20,565,070
5,800 Comerica Incorporated 270,607
10,500 Conseco, Inc. 187,688
2,500 Countrywide Credit Industries 62,969
48,700 Federal National Mortgage Assn. 3,042,231
12,200 Fifth Third Bancorp 894,794
46,100 First Union Corp. 1,515,538
41,491 Firstar Corporation 875,203
42,719 Fleet Boston Financial Corp. 1,488,492
9,500 Franklin Resources, Inc. 304,891
33,000 Freddie Mac 1,552,033
4,800 Golden West Financial Corporation 160,950
21,300 Household International Inc. 792,094
7,400 Huntington Bancshares Incorporated 176,444
7,900 J. P. Morgan & Co., Inc. 1,000,585
3,900 Jefferson Pilot Corporation 266,053
20,000 KeyCorp 443,750
1,500 L. F. Rothschild Holdings, Inc. 36,609
4,400 Lehman Brothers Holdings Inc. 372,900
7,400 Lincoln National Corporation 295,769
4,000 Loews Corporation 242,875
11,500 Marsh & McLennan Companies 1,100,406
2,800 MBIA, Inc. 147,875
</TABLE>
See accompanying notes to financial statements
10
<PAGE> 12
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE (Continued)
35,600 MBNA Corp. $ 968,989
23,000 Mellon Financial Corp. 783,438
38,500 Merrill Lynch & Co., Inc. 3,214,750
4,000 MGIC Investment Corporation 240,750
27,100 Morgan Stanley Dean Witter and Co. 3,869,373
27,900 National City Corp. 660,881
8,500 Northern Trust Corporation 453,954
1,100 Old Kent Financial Corporation 38,809
4,200 PaineWebber Group Inc. 163,144
13,400 PNC Bank Corp. 596,300
6,300 Providian Financial Corp. 573,694
7,200 Regions Financial Corp. 180,675
3,900 Republic New York Corporation 280,678
2,900 SAFECO Corporation 72,047
8,400 St. Paul Companies, Inc. 282,713
6,000 SLM Holding Corporation 253,313
5,500 SouthTrust Corporation 207,797
7,100 State Street Corporation 518,744
4,900 Summit Bancorp Inc. 150,063
14,400 Suntrust Banks Inc. 990,900
8,400 Synovus Financial Corp. 167,213
1,600 T. Rowe Price Associates, Inc. 59,000
3,150 The Bear Stearns Companies Inc. 134,564
26,800 The Hartford Financial Services Group, Inc. 1,270,489
2,100 The Progressive Corporation 153,563
2,900 Torchmark Corporation 84,372
4,700 Union Planters Corporation 185,503
7,700 United Healthcare Corporation * 409,544
9,000 UnumProvident Corporation 288,563
83,200 U. S. Bancorp 1,981,200
9,200 Wachovia Corp. 625,600
26,000 Washington Mutual 676,000
175,600 Wells Fargo & Company 7,106,321
------------------
118,053,080
------------------
</TABLE>
See accompanying notes to financial statements
11
<PAGE> 13
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTH - 8.98%
72,300 Abbott Laboratories $ 2,625,394
5,000 Allergan, Inc. 248,906
2,500 Alza Corp. * 86,562
48,200 Amgen * 2,893,509
32,800 Baxter International Inc. 2,060,250
9,300 Becton, Dickinson and Company 248,775
2,500 Biomet, Inc. 99,922
17,900 Boston Scientific Corp. * 391,562
215,800 Bristol-Myers Squibb Company 13,858,417
1,200 C. R. Bard, Inc. 63,600
12,200 Cardinal Health, Inc. 584,075
73,950 Columbia/HCA Healthcare Corporation 2,169,974
17,600 CVS Corp. 702,900
52,100 Eli Lilly and Company 3,464,650
13,500 Guidant Corp. * 634,500
10,000 Healthsouth Corporation * 53,438
3,600 Humana, Inc. * 29,363
146,000 Johnson & Johnson 13,596,250
8,000 Mallinckrodt Inc. 255,000
2,400 Manor Care Inc. * 38,325
9,100 McKesson HBOC Inc. 205,035
55,800 Medtronic, Inc. 2,033,212
258,700 Merck & Co., Inc. 17,349,069
298,700 Pfizer Inc. 9,679,762
58,200 Pharmacia & Upjohn, Inc. 2,624,459
1,800 St. Jude Medical Inc. * 55,181
69,700 Schering Plough Corporation 2,938,294
2,100 Sigma-Aldrich Corporation 63,066
10,600 Tenet Healthcare Corporation * 249,432
40,400 Warner Lambert Co. 3,311,540
2,100 Watson Pharmaceuticals Inc. * 75,534
1,400 Wellpoint Health Networks Inc. * 92,313
------------------
82,782,269
------------------
</TABLE>
See accompanying notes to financial statements
12
<PAGE> 14
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL CYCLICALS - 8.93%
8,400 Air Products and Chemicals, Inc. $ 281,663
8,400 Alcan Aluminum Limited 345,713
39,200 Alcoa Inc. 3,252,377
10,774 Allegheny Technologies Incorporated * 242,068
16,700 Applied Materials Inc. * 2,115,160
800 Armstrong World Industries Inc. 26,700
4,400 Avery Dennison Corp. 320,925
800 Ball Corporation 31,500
1,200 Bausch & Lomb Inc. 82,088
1,200 Bemis Company Inc. 41,813
13,600 Bethlehem Steel Corporation * 113,476
2,300 B. F. Goodrich Company 63,250
6,200 Boise Cascade Corporation 250,907
400 Briggs & Stratton Corporation 21,413
10,600 Brunswick Corporation 236,844
15,900 Caterpillar Inc. 749,287
32,400 Cendant Corp. * 860,625
1,200 Centex Corporation 29,588
10,500 Champion International Corporation 650,344
2,500 Cooper Industries, Inc. 101,172
10,800 Corning Incorporated 1,393,200
1,500 Crane Company 29,859
2,600 Crown Cork and Seal Company 58,175
5,200 Danaher Corporation 250,900
8,600 Deere and Company 373,294
7,800 Dover Corporation 353,925
122,300 DuPont (E. I.) de Nemours and Company 8,060,340
400 Eastern Gas and Fuel Associates 22,963
1,700 Eastman Chemical Company 81,016
37,100 Eastman Kodak Company 2,457,875
2,700 Engelhard Corporation 50,878
3,100 Equifax Inc. 73,237
19,200 First Data Corp. 948,000
6,700 FirstEnergy Corporation 152,006
800 Fleetwood Enterprises, Inc. 16,450
8,100 Fluor Corporation 371,335
</TABLE>
See accompanying notes to financial statements
13
<PAGE> 15
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL CYCLICALS (Continued)
800 FMC Corporation * $ 45,850
7,200 Fort James Corporation 197,325
800 Foster Wheeler Corporation 7,050
3,600 Freeport-McMoRan Inc. * 76,163
14,500 General Dynamics Corporation 765,329
6,400 Georgia Pacific Corporation 324,600
1,200 Great Lakes Chemical Corporation 45,825
2,300 Hercules Incorporated 64,112
112,600 Hewlett-Packard Company 12,836,400
106,050 Home Depot Inc. 7,274,372
23,100 Homestake Mining Company 180,469
333 Hutting Building Products * 1,644
3,200 IKON Office Solutions, Inc. 21,800
11,700 Illinois Tool Works Inc. 790,116
11,700 IMS Health Inc. 317,729
4,100 Inco Limited * 96,350
7,500 Ingersoll Rand Company 412,735
11,800 International Flavors & Fragrances Inc. 445,819
35,200 International Paper Company 1,985,502
1,100 Kaufman and Broad Home Corporation 26,537
25,600 Kimberly-Clark Corp. 1,670,400
17,600 Lockheed Martin Corp. 384,451
2,300 Louisiana Pacific Corporation 32,703
16,800 Lowe's Companies Inc. 1,003,800
15,100 Masco Corporation 383,635
2,100 Mead Corporation 91,153
800 Milacron Inc. 12,250
43,600 Minnesota Mining and Manufacturing 4,267,350
68,000 Monsanto Company 2,420,378
500 NACCO Industries, Inc. 27,734
1,400 Navistar International Corp. Holding * 66,325
4,300 Newmont Mining Corporation 105,216
1,500 Northrop Corporation 81,094
</TABLE>
See accompanying notes to financial statements
14
<PAGE> 16
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL CYCLICALS (Continued)
1,900 Nucor Corporation $ 104,203
9,100 Office Depot, Inc. * 99,816
1,200 Owens Corning, Inc. 23,250
3,300 Owens Illinois, Inc. * 82,603
3,700 Pactive Corporation * 39,428
2,700 Pall Corporation 58,135
3,200 Parker Hannifin Corporation 164,300
9,100 Paychex, Inc. 363,716
3,600 PE Corporation 432,563
1,900 Phelps Dodge Corporation 127,537
11,900 Pitney Bowes Inc. 576,406
8,300 Placer Dome Inc. 89,485
4,900 Polaroid Corporation 92,028
700 Potlatch Corporation 31,216
7,800 PPG Industries, Inc. 487,744
5,800 Praxair, Inc. 292,175
900 Pulte Corporation 20,222
1,300 Reynolds Metals Company 99,694
20,400 Rockwell International Corporation 975,375
8,000 Rohm and Haas Company 325,250
2,100 Sealed Air Corporation * 108,872
3,600 Sherwin Williams Company 75,488
1,400 Snap On Inc. 37,187
1,900 Stanley Works 57,356
20,600 Staples, Inc. * 426,162
1,200 Temple Inland Inc. 79,125
6,600 Textron Inc. 506,138
9,500 The Black & Decker Corporation 496,375
108,552 The Boeing Company 4,508,306
25,400 The Dow Chemical Company 3,393,283
5,100 Union Carbide Corporation 340,425
49,000 United Technologies Corporation 3,183,471
1,900 USX U. S. Steel Group 62,641
</TABLE>
See accompanying notes to financial statements
15
<PAGE> 17
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL CYCLICALS (Continued)
2,100 Vulcan Materials Company $ 84,000
1,600 W. R. Grace and Company * 22,150
2,100 Westvaco Corp. 68,447
22,800 Weyerhaeuser Company 1,636,614
3,000 Willamette Industries Inc. 139,313
2,000 Worthington Industries Inc. 33,063
71,200 Xerox Corporation 1,615,350
------------------
82,331,494
------------------
RETAIL - 5.35%
17,700 Albertsons Incorporated 570,273
3,200 AutoZone, Inc. * 103,400
1,900 Bed Bath and Beyond Inc. * 65,847
7,700 Best Buy Co., Inc. * 386,204
7,600 Circuit City Stores Circuit City Group 342,475
2,300 Consolidated Stores Corporation * 37,447
21,100 Dayton Hudson Corp. 1,549,531
2,300 Dillard Department Stores 46,503
7,600 Dollar General Corporation 172,663
9,200 Federated Department Stores, Inc. * 464,888
40,850 Gap Inc. 1,877,825
800 Great Atlantic and Pacific Tea Company 22,225
1,600 Harcourt General, Inc. 64,350
9,300 J. C. Penney Company Inc. 185,419
56,500 Kmart Corporation * 566,768
6,100 Kohl's Corporation * 440,344
800 Longs Drug Stores Corporation 20,600
3,000 Nordstrom, Inc. 78,750
6,300 Rite Aid Corporation 70,481
22,400 Safeway Inc. * 796,600
43,900 Sears, Roebuck and Co. 1,337,580
2,700 Supervalu, Inc. 53,916
22,200 Tandy Corporation 1,093,350
</TABLE>
See accompanying notes to financial statements
16
<PAGE> 18
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
RETAIL (Continued)
36,800 The Kroger Co. * $ 695,752
24,900 The Limited, Inc. 1,078,481
40,200 The May Department Stores Company 1,297,708
10,400 TJX Companies Inc. 212,550
27,900 Toys "R" Us, Inc. * 399,319
47,600 Walgreen Co. 1,393,790
489,400 Wal-Mart Stores, Inc. 33,829,775
3,600 Winn-Dixie Stores, Inc. 86,175
------------------
49,340,989
SERVICES - 4.69% ------------------
1,500 AM International Inc. 35,391
4,000 American Waste Services Inc. * 35,125
6,900 AMR Corporation * 462,300
53,800 Burlington Northern Santa Fe Corporation 1,308,012
29,100 Carnival Corp. 1,390,436
82,196 CBS Corporation * 5,255,407
14,900 Clear Channel Communications, Inc. * 1,329,825
35,400 Comcast Corporation * 1,788,808
8,200 CSX Corporation 257,532
2,900 Darden Restaurants Inc. 52,562
15,500 Delta Air Lines, Inc. 772,579
1,700 Deluxe Check Printers Incorporated 46,537
2,800 Dow Jones & Co., Inc. 190,400
4,600 Dun and Bradstreet Corporation 135,556
33,800 FDX Corporation * 1,385,800
12,500 Gannett Co., Inc. 1,019,531
2,100 H&R Block, Inc. 91,941
11,100 Harrah's Entertainment, Inc. * 293,110
5,500 Hilton Hotels Corporation 52,937
12,600 Interpublic Group of Companies 726,469
4,100 Kansas City Southern Industries, Inc. 305,835
2,000 Knight Ridder, Inc. 119,125
9,300 Marriott International Inc. 293,531
147,000 McDonald's Corporation 5,921,351
7,400 McGraw Hill Company Inc. 456,025
28,800 MediaOne Group, Inc. * 2,212,200
</TABLE>
See accompanying notes to financial statements
17
<PAGE> 19
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES (Continued)
1,200 Meredith Corporation $ 49,988
4,300 Mirage Resorts, Incorporated * 65,710
6,400 New York Times Company 314,200
43,500 Norfolk Southern Corporation 891,750
7,900 Omnicom Group Inc. 790,494
1,700 PACCAR, Inc. 75,278
2,800 R. R. Donnelly & Sons Company 69,563
5,900 Service Corporation International 40,931
18,300 Southwest Airlines Co. 296,231
222,500 The Walt Disney Company 6,508,125
59,300 Time Warner Inc. 4,295,544
1,600 Times Mirror Company 107,200
8,700 Tribune Company 479,044
4,900 Tricon Global Restaurants Inc. * 189,263
11,000 Union Pacific Corp. 479,188
1,600 US Airways Group, Inc. * 51,300
33,100 Viacom Inc. * 2,000,481
29,200 Waste Management Inc. 500,050
2,600 Wendy's International, Inc. 53,788
------------------
43,196,453
------------------
TECHNOLOGY - 35.63%
13,300 3Com Corp. * 624,685
1,800 Adaptec Inc. * 89,719
4,800 ADC Telecommunications, Inc. * 348,150
4,300 Adobe Systems Incorporated 289,175
3,200 Advanced Micro Devices Inc. * 92,500
181,800 America Online, Inc. * 13,714,538
2,300 Analog Devices, Inc. * 213,828
1,700 Andrew Corporation * 32,141
5,700 Apple Computer Incorporated * 585,853
1,200 Autodesk Inc. 40,463
29,400 Automatic Data Processing, Inc. 1,584,845
8,900 BMC Software, Inc. * 711,166
4,600 Cabletron Systems Inc. * 119,456
16,000 Ceridian Corporation * 345,501
343,050 Cisco Systems, Inc. * 36,738,528
</TABLE>
See accompanying notes to financial statements
18
<PAGE> 20
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (Continued)
700 Citrix Systems, Inc. * $ 86,078
80,600 COMPAQ Computer Corporation 2,181,238
25,600 Computer Associates International, Inc. 1,790,400
18,200 Computer Sciences Corporation * 1,721,607
13,600 Compuware Corporation * 506,176
1,425 Comverse Technology Inc. * 206,224
120,500 Dell Computer Corporation * 6,141,740
23,300 Electronic Data Systems Corp. 1,558,188
48,475 EMC Corporation * 5,295,894
20,600 Emerson Electric Co. 1,181,282
11,500 Gateway, Inc. * 829,438
355,900 General Electric Company 55,064,420
6,500 General Instrument Corporation * 552,703
20,665 Global Crossing Ltd. * 1,032,605
55,300 Honeywell International Inc. 3,190,119
362,200 Intel Corporation 29,802,287
202,600 International Business Machines Corporation 21,880,800
2,400 Johnson Controls, Inc. 136,575
3,200 KLA-Tencor Corporation * 356,300
3,600 Lexmark International Group Inc. * 325,800
5,400 LSI Logic Corporation * 364,500
291,240 Lucent Technologies Corp. 21,788,393
2,100 Maytag Corporation 100,800
9,400 Micron Technology, Inc. * 730,850
417,800 Microsoft Corporation * 48,765,115
900 Millipore Corporation 34,791
1,400 Molex Incorporated 79,319
28,700 Motorola Inc. 4,228,767
18,000 National Semiconductor Corporation * 770,625
800 National Service Industries, Inc. 23,550
5,100 Network Appliance, Inc. * 423,460
141,600 Nortel Networks Corporation 14,306,032
12,500 Novell Inc. * 498,829
158,387 Oracle Corporation * 17,744,302
8,200 Parametric Technology Corporation * 221,657
6,400 PeopleSoft, Inc. * 136,200
</TABLE>
See accompanying notes to financial statements
19
<PAGE> 21
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (Continued)
900 Perkin Elmer Inc. $ 37,547
21,600 QUALCOMM Incorporated * 3,803,626
38,600 Raytheon Company 1,024,108
1,600 Scientific Atlanta Inc. 88,950
8,100 Seagate Technology, Inc. * 376,904
500 Shared Medical Systems Corporation 25,469
4,000 Silicon Graphics, Inc. * 39,375
11,900 Solectron Corporation * 1,131,988
73,400 Sun Microsystems, Inc. * 5,681,622
5,350 Tektronix, Inc. 207,981
18,900 Tellabs Inc. * 1,212,554
1,500 Teradyne, Inc. * 98,953
84,600 Texas Instruments Incorporated 8,198,273
3,300 Thermo Electron Corporation * 49,706
1,200 Thomas and Betts Corp. 38,288
116,384 Tyco International Ltd. 4,524,428
27,600 Unisys Corporation* 881,475
2,400 W. W. Grainger, Inc. 114,675
1,900 Whirlpool Corporation 123,678
7,200 Xilinx, Inc. * 327,375
2,300 Yahoo! Inc. * 995,253
------------------
328,569,840
------------------
UTILITIES - 8.66%
7,300 AES Corporation * 545,447
13,300 Alltel Corp. 1,099,744
3,500 Ameren Corp. 114,625
20,400 American Electric Power, Inc. 654,714
342,750 AT&T Corp. 17,415,983
168,636 Bell Atlantic Corporation 10,376,392
90,200 Bellsouth Corp. 4,222,488
4,500 Carolina Power and Light Company 136,969
5,400 Central and South West Corporation 108,000
5,200 CenturyTel, Inc. 246,188
4,100 Cinergy Corp. 98,913
2,500 CMS Energy Corporation 77,969
10,000 Consolidated Edison Inc. 345,313
</TABLE>
See accompanying notes to financial statements
20
<PAGE> 22
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------
Shares Common Stocks Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES (Continued)
3,800 Constellation Energy Group, Inc. $ 110,081
7,100 Dominion Resources, Inc. 278,897
4,200 DTE Energy Company 131,644
16,100 Duke Energy Corp. 806,510
13,000 Edison International Inc. 340,844
4,800 El Paso Energy Corporation 186,150
28,300 Entergy Corporation 727,842
2,500 Florida Progress Corporation 105,860
6,800 FPL Group, Inc. 291,125
3,200 General Public Utilities Corporation 95,800
46,300 GTE Corporation 3,271,387
229,200 MCI WorldCom Inc. * 12,154,774
2,500 New Century Energies 75,860
14,200 NEXTEL Communications, Inc. * 1,463,932
4,000 Niagara Mohawk Power Corporation * 55,625
1,000 Nicor Incorporated 32,469
3,300 Northern States Power Company 64,350
6,900 Peco Energy Co. 239,560
4,000 Pennsylvania Power and Light Co. 91,375
800 Peoples Energy Corporation 26,800
17,100 PG&E Corp. 350,016
400 Pinnacle West Capital Corporation 12,213
8,300 Public Service Enterprise Group Inc. 288,685
11,100 Reliant Energy Inc. 253,913
269,856 SBC Communications Inc. 13,163,926
79,900 Southern Company 1,872,656
41,400 Sprint Corp FON Group 2,788,033
20,900 Sprint Corp PCS Group * 2,144,863
12,500 Texas Utilities Co. 444,531
24,900 Unicom Corporation 833,373
24,000 U S WEST Communications, Inc. 1,728,000
------------------
79,873,839
------------------
TOTAL COMMON STOCKS - 100.50% 926,709,181
(cost $660,377,060) ------------------
</TABLE>
See accompanying notes to financial statements
21
<PAGE> 23
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------
Contracts Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
PUT OPTIONS - 0.62%
1,451 On S&P 500 Stock Index expiring January 22, 2000 at 1200 $ 181,375
1,525 On S&P 500 Stock Index expiring February 19, 2000 at 1300 1,305,781
3,368 On S&P 500 Stock Index expiring March 18, 2000 at 1275 4,188,950
------------------
(cost $11,905,866) 5,676,106
------------------
REPURCHASE AGREEMENT - 8.09% **
1.00% repurchase agreement
with Firstar Bank, N.A.,
dated December 31, 1999, due January 3, 2000 74,660,000
(repurchase proceeds $74,666,222) ------------------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENT - 109.21% 1,007,045,287
------------------
CALL OPTIONS OUTSTANDING - (9.36%) ***
(1,118) On S&P 100 Stock Index expiring January 22, 2000 at 700 (10,956,400)
(1,485) On S&P 500 Stock Index expiring January 22, 2000 at 1300 (26,126,718)
(851) On S&P 500 Stock Index expiring January 22, 2000 at 1375 (8,994,006)
(414) On S&P 500 Stock Index expiring January 22, 2000 at 1400 (3,454,313)
(717) On S&P 500 Stock Index expiring February 19, 2000 at 1350 (10,123,144)
(738) On S&P 500 Stock Index expiring February 19, 2000 at 1375 (8,851,388)
(793) On S&P 500 Stock Index expiring February 19, 2000 at 1400 (7,915,131)
(737) On S&P 500 Stock Index expiring March 18, 2000 at 1375 (9,843,556)
-------------------
(premiums received $48,013,650) (86,264,656)
===================
OTHER ASSETS AND LIABILITIES, NET - 0.15% 1,347,700
-------------------
NET ASSETS - 100.00% $ 922,128,331
===================
</TABLE>
* Denotes a non-income producing security.
** Repurchase agreement fully collateralized by
U. S. Government Agency obligations.
*** The aggregate value of investments that covers
outstanding call options is $926,709,181.
See accompanying notes to financial statements
22
<PAGE> 24
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GATEWAY FUND
STATEMENT OF ASSETS AND LIABILITIES - DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Common stocks, at value (original cost $660,377,060) $ 926,709,181
Put options, at value (original cost $11,905,866) 5,676,106
Repurchase agreement 74,660,000
Receivable for fund shares sold 1,140,735
Dividend and interest receivable 782,356
Cash 269
Other assets 4,672
-----------------
1,008,973,319
=================
LIABILITIES:
Call options outstanding, at value
(premiums received $48,013,650) 86,264,656
Accrued distribution fees 319,948
Payable for fund shares redeemed 145,965
Other accrued expenses and liabilities 114,419
-----------------
86,844,988
-----------------
NET ASSETS $ 922,128,331
=================
NET ASSETS CONSIST OF:
Paid-in capital applicable to 38,951,594 shares outstanding
(unlimited number of shares authorized, no par value) $ 761,989,616
Undistributed net investment income 50,104
Accumulated realized loss, net (61,762,744)
Unrealized appreciation, net 221,851,355
-----------------
$ 922,128,331
=================
NET ASSET VALUE, OFFERING, AND REDEMPTION
PRICE PER SHARE $23.67
======
</TABLE>
See accompanying notes to financial statements
23
<PAGE> 25
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GATEWAY FUND
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividend income $ 7,629,482
Interest income 1,353,483
----------------
8,982,965
----------------
EXPENSES:
Investment advisory and management fees 4,048,147
Distribution fees 2,073,778
Registration fees 151,815
Professional fees 56,917
Custodian fees 55,865
Trustees' fees 30,535
Insurance expense 19,619
Other expenses 88,689
----------------
6,525,365
----------------
NET INVESTMENT INCOME 2,457,600
----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on investments:
Securities 25,158,365
Call options expired and closed (9,467,556)
Put options expired and closed (51,190,960)
----------------
(35,500,151)
----------------
Change in unrealized appreciation/depreciation of investments:
Securities 140,871,340
Call options (25,131,471)
Put options (2,344,746)
----------------
113,395,123
----------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 77,894,972
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 80,352,572
================
</TABLE>
See accompanying notes to financial statements
24
<PAGE> 26
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GATEWAY FUND
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------
Year Ended December 31,
1999 1998
--------------- --------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 2,457,600 $ 2,412,810
Net realized loss on investments (35,500,151) (27,651,246)
Net change in unrealized appreciation/depreciation of investments 113,395,123 66,605,828
-------------- -------------
Net increase in net assets resulting from operations 80,352,572 41,367,392
-------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (2,438,681) (2,382,755)
From net realized gain on investments
-- (277,798)
-------------- -------------
Decrease in net assets from dividends and distributions (2,438,681) (2,660,553)
-------------- -------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 636,834,219 302,072,143
Net asset value of shares issued in reinvestment of
dividends and distributions 2,147,316 2,501,190
Payments for shares redeemed (258,967,347) (134,538,098)
-------------- -------------
Net increase in net assets from fund shares transactions 380,014,188 170,035,235
-------------- -------------
NET INCREASE IN NET ASSETS 457,928,079 208,742,074
NET ASSETS:
Beginning of year 464,200,252 255,458,178
-------------- -------------
End of year, including undistributed net investment
income of $50,104 and $31,185, respectively $922,128,331 $464,200,252
============== =============
FUND SHARE TRANSACTIONS:
Shares sold 28,353,150 15,943,506
Shares issued in reinvestment of dividends and distributions 93,403 88,960
Shares redeemed (11,580,626) (7,498,906)
-------------- -------------
NET INCREASE IN SHARES OUTSTANDING 16,865,927 8,533,560
============== =============
</TABLE>
See accompanying notes to financial statements
25
<PAGE> 27
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GATEWAY FUND
FINANCIAL HIGHLIGHTS - PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- ----------------------------------------------------------------------------------------------------------
Year Ended December 31,
1999 1998 1997 1996 1995 (1)
---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $21.02 $18.85 $18.48 $16.91 $15.48
------ ------ ------ ------ ------
Net investment income 0.07 0.12 0.18 0.21 0.24
Net gain on investments 2.65 2.18 2.09 1.56 1.46
------ ------ ------ ------ ------
Total from investment operations 2.72 2.30 2.27 1.77 1.70
------ ------ ------ ------ ------
Dividends from net investment income (0.07) (0.12) (0.18) (0.20) (0.24)
Distributions from net realized gain -- (0.01) (1.72) -- --
Distributions in excess of
net realized gain -- -- -- -- (0.03)
------ ------ ------ ------ ------
Total distributions (0.07) (0.13) (1.90) (0.20) (0.27)
------ ------ ------ ------ ------
Net asset value, end of year $23.67 $21.02 $18.85 $18.48 $16.91
====== ====== ====== ====== ======
TOTAL RETURN 12.97% 12.26% 12.35% 10.53% 11.04%
Net assets, end of year (thousands) $922,128 $464,200 $255,458 $194,363 $176,220
Ratio of expenses to average net 0.98% 0.99% 1.07% 1.14% 1.19%
assets
Ratio of net investment income to
average net assets 0.37% 0.66% 0.90% 1.18% 1.51%
Portfolio turnover rate 11% 12% 82% 17% 5%
</TABLE>
(1) On December 15, 1995, Gateway Investment Advisers, L.P. succeeded Gateway
Investment Advisers, Inc. as investment adviser to the Fund.
See accompanying notes to financial statements
26
<PAGE> 28
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- -------------------------------------------------------------------------------
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 was $660,542,650 at December
31, 1999; gross unrealized appreciation totaled $291,942,437 and gross
unrealized depreciation totaled $25,775,906. The Fund has a net capital loss
carryforward of $106,036,975, of which $43,225,339 expires on December 31, 2006
and $62,811,636 expires on December 31, 2007.
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.
27
<PAGE> 29
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
Effective January 1, 1999, the Fund adopted a Distribution Plan pursuant to Rule
12b-1 of the Investment Company Act of 1940 that allows for the payment of
distribution expenses related to the sale and distribution of its shares. In any
year, distribution expenses cannot exceed 0.50% of the Fund's average daily net
assets. Also effective January 1, 1999, the Fund pays the Adviser an investment
advisory and management fee under a new Management Agreement at an annual rate
of 0.925% of the Fund's average daily net asset value minus distribution
expenses incurred by the Fund. 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 under the new
Management Agreement.
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.
3. SECURITIES TRANSACTIONS
For the year ended December 31, 1999, purchases of investment securities
(excluding short-term investments) totaled $370,739,339 and proceeds from sales
totaled $69,925,281.
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. In general, 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 generally increases to offset declines and decreases to offset rises in
portfolio value. For the year ended December 31, 1999, transactions in written
options were as follows:
Number of Contracts Premiums
------------------- --------
Outstanding at December 31, 1998 7,614 $ 21,182,640
Options written 60,845 262,798,164
Options exercised (61,606) (235,967,154)
------- ------------
Outstanding at December 31, 1999 6,853 $ 48,013,650
======= ============
4. BANK LOANS
The Fund has an uncommitted $37,500,000 bank line of credit to be used as a
temporary liquidity source for meeting redemption requests. Borrowings under
this arrangement, expiring October 31, 2000, bear interest at the bank's prime
rate minus 0.5%. There are no fees associated with maintaining this facility.
For the year ended December 31, 1999, there were no borrowings on this line of
credit.
28
<PAGE> 30
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of the Gateway Fund of The Gateway
Trust:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the Gateway Fund (one of the funds constituting
The Gateway Trust) as of December 31, 1999, and the related statement of
operations, the statements of changes in net assets, and the financial
highlights for the periods indicated thereon. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Gateway Fund of The Gateway Trust as of December 31, 1999, the results of its
operations, the changes in its net assets, and the financial highlights for the
periods indicated thereon, in conformity with generally accepted accounting
principles.
Cincinnati, Ohio Arthur Andersen LLP
January 19, 2000
29
<PAGE> 31
- --------------------------------------------------------------------------------
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 Bank, N.A.
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
30
<PAGE> 32
- --------------------------------------------------------------------------------
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> 33
CINCINNATI(R)
FUND
[CINCINNATI FUND(R) LOGO] ANNUAL REPORT
1999
P.O. BOX 5211 CINCINNATI, OHIO 45201-5211
(800) 354-5525
<PAGE> 34
CINCINNATI FUND(R)
Highlights at December 31, 1999
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------------------
Past One Three Five Since Inception Price
Quarter Year Years Years on 11/7/94 Per Share
------- ---- ----- ----- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
CINCINNATI FUND(R) 6.84% (4.13%) 11.43% 17.55% 16.82% $ 19.84
S&P 500 14.88 21.04 27.56 28.55
Russell 2000 18.45 21.26 13.08 16.69
Lehman Gov't./
Corp. Bond (0.41) (1.76) 5.68 7.69
U. S. Inflation (CPI) 0.54 2.69 2.18 2.48
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------------------
Past One Three Five Since Inception
Quarter Year Years Years on 11/7/94
------- ---- ----- ----- ----------
<S> <C> <C> <C> <C> <C>
CINCINNATI FUND(R) 6.84% (4.13%) 38.36% 124.62% 122.59%
S&P 500 14.88 21.04 107.55 251.10
Russell 2000 18.45 21.26 44.58 116.37
Lehman Gov't./
Corp. Bond (0.41) (1.76) 18.02 44.82
U. S. Inflation (CPI) 0.54 2.69 6.67 13.02
</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> 35
CINCINNATI FUND(R)
Letter from the Chairman - December 31, 1999
Dear Shareholder:
The Cincinnati business community prospered in 1999. Many of our local
companies, both large and small, posted sales and earnings records. However,
this did not translate into success for the Cincinnati Fund's portfolio.
Despite favorable business conditions throughout the year, investors
overlooked many of Cincinnati's most venerable companies and focused instead on
high technology and communications -- rapidly growing industries that are not
heavily represented in local environs. For a full description of the impact of
these market-related factors, please see portfolio manager Patrick Rogers'
report on the following pages.
While Cincinnati's traditional base of manufacturing, marketing, and
finance did not attract investor attention in 1999, its industry-leading
companies became ever greater values. As sales and profits improved and stock
prices remained flat or declined, relative value increased significantly.
Cincinnati's business community, as represented by the stock market, ended the
year overlooked and unwanted.
As we move into the new decade, Cincinnati companies are well-managed
and well-positioned to benefit from continued economic expansion. We remain
confident that the values represented here will be recognized in the months and
quarters ahead. Your Fund is poised for recovery.
Cordially,
/s/ Walter G. Sall
Walter G. Sall
Chairman
- --------------------------------------------------------------------------------
2 CINCINNATI FUND
<PAGE> 36
CINCINNATI FUND(R)
Portfolio Manager's Report - December 31, 1999
Even though the major market averages produced above normal returns for
1999, the narrowness of last year's market advance made it difficult for the
Cincinnati Fund(R) to participate. For the twelve months ended December 31,
1999, the Cincinnati Fund produced a -4.1% return. Over the same time period,
the S&P 500 Index and the Russell 2000 Index produced returns of 21.0% and
21.3%, respectively.
Believe it or not, only seven stocks out of the 500 common stocks
included in the S&P 500 accounted for the majority of last year's performance.
Moreover, the technology sector explained 80% of last year's rise in the S&P
500. In fact, 1999 was the only year of this past decade when more stocks
declined than rose, yet the weighted-average produced a positive return. In
other words, if you did not own the few stocks which had excellent performance
last year, it was difficult to make money.
Unfortunately for the Cincinnati Fund, our local business environment
does not have a strong technology presence. It was particularly frustrating this
past year to witness many of our local corporations producing outstanding sales
and earnings growth, and yet their stock prices languished. Additionally, with
the Federal Reserve Board increasing interest rates three times during the year,
the Fund's holdings of banks, insurance companies, and cyclically-based
companies declined due to their sensitivity to the Fed's intention to slow the
economy down.
------------------------------------------------------
Top Five Performers
January 1, 1999 to December 31, 1999
(price appreciation only)
------------------------------------------------------
Duramed Pharmaceuticals, Inc. 90%
NS Group, Inc. 72
General Electric Company 51
Convergys Corporation 37
The Procter & Gamble Company 21
------------------------------------------------------
- --------------------------------------------------------------------------------
3 CINCINNATI FUND
<PAGE> 37
CINCINNATI FUND(R)
Portfolio Manager's Report - December 31, 1999
In viewing the Cincinnati Fund's top ten holdings, I remain confident
in the Fund's ability to produce excellent long-term gains for all of its
shareholders. These companies remain worldwide leaders in their respective
industries.
---------------------------------------------------------
TOP TEN HOLDINGS
As of December 31, 1999
---------------------------------------------------------
As a Percentage
Stocks of Net Assets
---------------------------------------------------------
Broadwing Inc. 8.18%
Fifth Third Bancorp 7.18
General Electric Company 6.69
The Procter & Gamble Company 6.61
Convergys Corporation 6.03
The Kroger Co. 4.60
Clear Channel Communications, Inc. 4.50
Firstar Corporation 4.39
The E. W. Scripps Company 3.34
Cintas Corporation 3.23
---------------------------------------------------------
Although this past year tested the patience of all of us who invest in
Cincinnati-based stocks, we believe the Fund is an attractive investment for
those wishing to invest locally.
/s/ J. Patrick Rogers
J. Patrick Rogers, CFA
Portfolio Manager
- --------------------------------------------------------------------------------
4 CINCINNATI FUND
<PAGE> 38
CINCINNATI FUND(R)
Portfolio Manager's Report - December 31, 1999
GROWTH OF A $10,000 INVESTMENT
November 7, 1994 (inception date) - December 31, 1999
[Graph showing the following information]
- -----------------------------------------------------
CINCINNATI FUND S&P 500 RUSSELL 2000
- -----------------------------------------------------
$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
$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
$22,761.93 $30,882.33 $18,686.77
$21,904.03 $30,727.92 $17,995.36
$20,834.46 $29,885.66 $17,998.96
$21,748.05 $31,776.83 $18,072.76
$21,803.73 $32,422.85 $19,151.70
$22,260.51 $34,332.56 $21,319.67
---------------------------------------
CINCINNATI FUND
Average Annual Total Returns
as of December 31, 1999
------------------- -------------------
One Year (4.1%)
------------------- -------------------
Five Years 17.6%
------------------- -------------------
Life of Fund 16.8%
------------------- -------------------
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> 39
CINCINNATI FUND(R)
Portfolio of Investments - December 31, 1999
Shares Common Stocks Value
------ ------------- -----
CONSUMER DURABLES - 8.20%
12,100 Cintas Corporation $ 642,435
9,500 Ford Motor Company 507,656
6,600 General Motors Corporation 480,150
----------
1,630,241
----------
CONSUMER STAPLES - 8.28%
20,000 Chiquita Brands International 97,500
3,300 H. J. Heinz Company 131,278
4,600 Sara Lee Corporation 101,631
12,000 The Procter & Gamble Company 1,314,750
----------
1,645,159
----------
ENERGY - 0.83%
5,000 Ashland Inc. 164,688
----------
FINANCE - 23.06%
2,500 American Annuity Group, Inc. 45,078
8,800 American Financial Group, Inc. 232,375
2,376 Bank One Corporation 76,181
15,429 Cincinnati Financial Corporation 479,746
14,000 Duke-Weeks Realty Corporation 272,563
19,448 Fifth Third Bancorp 1,426,390
2,049 First Financial Bancorp 42,779
41,400 Firstar Corporation 873,283
2,559 Huntington Bancshares Incorporated 61,016
11,804 KeyCorp 261,901
9,000 Ohio Casualty Corporation 144,844
1,800 PNC Bank Corp. 80,100
12,925 Provident Financial Group, Inc. 464,492
6,000 The Midland Company 124,500
----------
4,585,248
----------
HEALTH - 4.03%
5,500 Duramed Pharmaceuticals, Inc. * 39,016
5,600 Johnson & Johnson 521,500
5,000 Kendle International, Inc. * 49,688
16,722 Meridian Diagnostics, Inc. 119,405
6,000 Omnicare, Inc. 71,625
----------
801,234
----------
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
6 CINCINNATI FUND
<PAGE> 40
CINCINNATI FUND(R)
Portfolio of Investments - December 31, 1999
Shares Common Stocks Value
------ ------------- -----
INDUSTRIAL CYCLICALS - 6.73%
8,000 AK Steel Holding Corporation $ 149,750
14,700 Chemed Corporation 419,410
21,000 LSI Industries Inc. 450,188
15,000 Milacron Inc. 229,688
4,300 Multi-Color Corporation * 24,053
8,500 NS Group, Inc. * 64,547
-----------
1,337,636
-----------
RETAIL - 6.97%
9,300 Federated Department Stores, Inc. * 469,941
48,400 The Kroger Co. * 915,065
-----------
1,385,006
-----------
SERVICES - 11.10%
10,022 Clear Channel Communications, Inc. * 894,464
6,100 Delta Air Lines, Inc. 304,047
6,890 Frisch's Restaurants, Inc. 61,149
2,400 Gannett Co., Inc. 195,750
4,000 Harte-Hanks, Inc. 87,000
14,800 The E. W. Scripps Company 663,688
-----------
2,206,098
-----------
TECHNOLOGY - 17.60%
39,000 Convergys Corporation * 1,198,033
8,600 General Electric Company 1,330,582
39,425 Pomeroy Computer Resources, Inc. * 516,223
35,600 Structural Dynamics Research Corporation * 455,014
-----------
3,499,852
-----------
UTILITIES - 12.79%
10,950 AT&T Corp. 556,397
44,000 Broadwing Inc. 1,625,252
15,000 Cinergy Corp. 361,875
-----------
2,543,524
-----------
TOTAL COMMON STOCKS - 99.59% 19,798,686
(cost $13,915,219)
OTHER ASSETS AND LIABILITIES, NET - 0.41% 81,248
-----------
NET ASSETS - 100.00% $19,879,934
===========
* Denotes a non-income producing security.
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
7 CINCINNATI FUND
<PAGE> 41
CINCINNATI FUND(R)
Statement of Assets and Liabilities - December 31, 1999
ASSETS:
Common stocks, at value (original cost $13,915,219) $19,798,686
Cash 73,742
Dividend and interest receivable 26,736
Receivable for fund shares sold 913
Other assets 2,852
-----------
19,902,929
-----------
LIABILITIES:
Payable for fund shares redeemed 3,177
Other accrued expenses and liabilities 19,818
-----------
22,995
-----------
NET ASSETS $19,879,934
===========
NET ASSETS CONSIST OF:
Paid-in capital applicable to 1,002,044 shares outstanding
(unlimited number of shares authorized, no par value) $13,995,266
Undistributed net investment income 380
Accumulated realized gain, net 821
Unrealized appreciation, net 5,883,467
-----------
$19,879,934
===========
NET ASSET VALUE, OFFERING, AND
REDEMPTION PRICE PER SHARE $ 19.84
===========
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
8 CINCINNATI FUND
<PAGE> 42
CINCINNATI FUND(R)
Statement of Operations
For the Year Ended December 31, 1999
INVESTMENT INCOME:
Dividend income $ 402,099
Interest income 11,046
-----------
413,145
-----------
EXPENSES:
Investment advisory and management fees 117,111
Transfer agent and accounting fees 94,844
Reports to shareholders 35,665
Professional fees 14,514
Trustees' fees 11,692
Custodian fees 8,652
Registration fees 5,636
Other expenses 10,976
-----------
299,090
-----------
NET INVESTMENT INCOME 114,055
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 20,718
Net decrease in unrealized appreciation of investments (1,192,108)
-----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (1,171,390)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,057,335)
===========
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
9 CINCINNATI FUND
<PAGE> 43
CINCINNATI FUND(R)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 114,055 $ 71,252
Net realized gain on investments 20,718 422,739
Net increase (decrease) in unrealized appreciation of investments (1,192,108) 1,932,515
------------ ------------
Net increase (decrease) in net assets resulting from operations (1,057,335) 2,426,506
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (113,675) (72,381)
From net realized gain on investments (25,972) (425,541)
------------ ------------
Decrease in net assets from dividends and distributions (139,647) (497,922)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 1,442,510 10,152,314
Net asset value of shares issued in reinvestment
of dividends and distributions 110,040 407,597
Payments for shares redeemed (7,019,884) (3,471,511)
------------ ------------
Net increase (decrease) in net assets from fund shares transactions (5,467,334) 7,088,400
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS (6,664,316) 9,016,984
NET ASSETS:
Beginning of year 26,544,250 17,527,266
------------ ------------
End of year, including undistributed net investment
income of $380 and $0, respectively $ 19,879,934 $ 26,544,250
============ ============
FUND SHARE TRANSACTIONS:
Shares sold 71,004 529,125
Shares issued in reinvestment of dividends and distributions 5,547 16,071
Shares redeemed (348,159) (194,873)
------------ ------------
NET INCREASE (DECREASE) IN SHARES OUTSTANDING (271,608) 350,323
============ ============
</TABLE>
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
10 CINCINNATI FUND
<PAGE> 44
CINCINNATI FUND(R)
Financial Highlights
Per Share Data for a Share Outstanding Throughout Each Year
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995 (1)
---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $20.84 $18.98 $15.40 $13.12 $ 9.91
------- ------- ------- ------ ------
Net investment income 0.12 0.06 0.07 0.02 0.04
Net gain (loss) on investments (0.98) 2.20 4.39 2.60 3.46
------- ------- ------- ------ ------
Total from investment operations (0.86) 2.26 4.46 2.62 3.50
------- ------- ------- ------ ------
Dividends from net investment income (0.12) (0.06) (0.07) (0.02) (0.07)
Distributions from net realized gain (0.02) (0.34) (0.81) (0.32) (0.22)
------- ------- ------- ------ ------
Total distributions (0.14) (0.40) (0.88) (0.34) (0.29)
------- ------- ------- ------ ------
Net asset value, end of year $19.84 $20.84 $18.98 $15.40 $13.12
======= ======= ======= ====== ======
TOTAL RETURN (4.13%) 11.89% 28.98% 19.98% 35.31%
Net assets, end of year (millions) $19,880 $26,544 $17,527 $8,984 $5,877
Ratio of expenses to average net assets(2) 1.28% 1.37% 1.69% 2.00% 1.98%
Ratio of net investment income
to average net assets(2) 0.49% 0.30% 0.50% 0.13% 0.46%
Portfolio turnover rate 22% 8% 17% 10% 9%
</TABLE>
(1) On December 15, 1995, Gateway Investment Advisers, L.P. succeeded Gateway
Investment Advisers, Inc. as investment adviser to the Fund.
(2) The ratio of 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 and 0.02% in 1995 had the Adviser not voluntarily waived fees
or reimbursed expenses.
See accompanying notes to financial statements
- --------------------------------------------------------------------------------
11 CINCINNATI FUND
<PAGE> 45
CINCINNATI FUND(R)
Notes to Financial Statements - December 31, 1999
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 December 31, 1999, gross unrealized appreciation of common stocks totaled
$6,072,536 and gross unrealized depreciation totaled $189,069, 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).
- --------------------------------------------------------------------------------
12 CINCINNATI FUND
<PAGE> 46
CINCINNATI FUND(R)
Notes to Financial Statements - December 31, 1999
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.
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.
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.
3. SECURITIES TRANSACTIONS
For the year ended December 31, 1999, purchases of investment securities
(excluding short-term investments) totaled $4,950,903, and proceeds from sales
totaled $10,393,281.
4. BANK LOANS
The Fund has an uncommitted $1,000,000 bank line of credit to be used as a
temporary liquidity source for meeting redemption requests. Borrowings under
this arrangement, expiring October 31, 2000, bear interest at the bank's prime
rate minus 0.5%. There are no fees associated with maintaining this facility.
For the year ended December 31, 1999, there were no borrowings on this line of
credit.
- --------------------------------------------------------------------------------
13 CINCINNATI FUND
<PAGE> 47
CINCINNATI FUND(R)
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of the Cincinnati Fund(R)of The
Gateway Trust:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the Cincinnati Fund (one of the funds
constituting The Gateway Trust) as of December 31, 1999, and the related
statement of operations, the statements of changes in net assets, and the
financial highlights for the periods indicated thereon. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Cincinnati Fund of The Gateway Trust as of December 31, 1999, the results of its
operations, the changes in its net assets, and the financial highlights for the
periods indicated thereon, in conformity with generally accepted accounting
principles.
Cincinnati, Ohio Arthur Andersen LLP
January 19, 2000
- --------------------------------------------------------------------------------
14 CINCINNATI FUND
<PAGE> 48
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
<PAGE> 49
GATEWAY
SMALL CAP INDEX
FUND
(STATUE OF LIBERTY LOGO)
(Statue of Liberty Logo)
THE GATEWAY TRUST
P.O. Box 5211
CINCINNATI, OH 45201-5211 ANNUAL REPORT
(800) 354-6339 1999
<PAGE> 50
- --------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Highlights at December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------------
Past One Three Five Since Inception Distributions Price
Quarter Year Years Years on 6/16/93 Year to Date Per Share
------- ---- ----- ----- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
GATEWAY SMALL CAP
INDEX FUND 21.34% 29.13% 14.60% 16.48% 12.38% $ 1.213 $ 13.66
Wilshire Small Cap Index 23.31 36.85 19.98 21.27
Russell 2000 18.45 21.26 13.08 16.69
U. S. Inflation (CPI) 0.54 2.69 2.18 2.48
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
----------------------------------------
Past One Three Five Since Inception
Quarter Year Years Years On 6/16/93
------- ---- ----- ----- ----------
<S> <C> <C> <C> <C> <C>
GATEWAY SMALL CAP
INDEX FUND 21.34% 29.13% 50.49% 114.54% 114.80%
Wilshire Small Cap Index 23.31 36.85 72.72 162.29
Russell 2000 18.45 21.26 44.58 116.37
U. S. Inflation (CPI) 0.54 2.69 6.67 13.02
</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> 51
- --------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Letter from the Chairman
- --------------------------------------------------------------------------------
Dear Shareholder:
In 1999, the small capitalization stock sector was finally recognized for the
great value represented by the stocks within it. After lagging the large cap
indexes for the past four years and into 1999, small cap stocks, as represented
in the Gateway Small Cap Index Fund, captured investors' attention and surged
forward. Your Fund was there to participate.
Your Fund continues to invest in the 250 stocks in the Wilshire Small Cap Index.
Portfolio manager Patrick Rogers utilizes index option strategies as deemed
appropriate to alter the risk profile or to enhance the return of this normally
volatile list of stocks. Please review Patrick's report beginning on page three.
As the Wilshire Small Cap Index has announced changes in its components, we have
faithfully reflected those changes in your Fund's portfolio. In the rising
markets that have generally prevailed in the past four years, these changes gave
rise to a significant capital gains distribution in 1999.
As we move into the new millennium, many small cap stocks are still attractively
priced. Our representation in the group and the sparing use of hedging
techniques offers the possibility of favorable participation in the further
recovery of the small cap sector in the months and quarters ahead.
Cordially,
/s/ Walter G. Sall
Walter G. Sall
Chairman
2
<PAGE> 52
- --------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio Manager's Report
- --------------------------------------------------------------------------------
Finally! After years of trailing the big blue-chip stocks, small capitalization
stocks took off in the fourth quarter of 1999. Investors had perceived that
small capitalization companies could not generate the capital or management
expertise to keep up with a rapidly changing world. We disagreed! 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 used hedging tools
sparingly throughout 1999 in order to more fully participate in the recovery of
this long-neglected group of stocks.
For the twelve months ended December 31, 1999, the Gateway Small Cap Index Fund
produced a total return of 29.13%. This compares favorably to 21.26% produced by
the Russell 2000 and the 21.04% produced by the S&P 500 Index.
The Gateway Small Cap Index Fund invests in the 250 stocks in the Wilshire Small
Cap Index. The weighted-average market capitalization of the portfolio as of
December 31, 1999 was $1.24 billion. The largest industry group was Computer
Software & Peripherals at 25.26%.
3
<PAGE> 53
- --------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio Manager's Report
- --------------------------------------------------------------------------------
--------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
TOP TEN HOLDINGS
--------------------------------------------------
AS A PERCENTAGE OF
STOCKS NET ASSETS
--------------------------------------------------
BroadVision, Inc. 5.09%
BEA Systems, Inc. 3.30
Network Solutions, Inc. 2.77
Lam Research Corporation 1.73
Macromedia, Inc. 1.38
Cypress Semiconductor Corporation 1.36
Advanced Fibre Communications 1.34
Symantec Corporation 1.33
Western Wireless Corporation 1.26
Proxicom, Inc. 1.24
--------------------------------------------------
We continue to remain bullish on small cap stocks in relation to the big blue
chips. We look forward to continued success in 2000!
/s/ J. Patrick Rogers
J. Patrick Rogers, CFA
Portfolio Manager
4
<PAGE> 54
- --------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio Manager's Report
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
June 16, 1993 (inception date) - December 31, 1999
[Graph showing the following information]
------------------------------------
GATEWAY SMALL CAP
INDEX FUND RUSSELL 2000
------------------------------------
$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
$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
$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
$18,121.17 $20,910.11
$17,616.13 $20,136.44
$17,702.62 $20,140.46
$18,351.78 $20,223.04
$19,390.49 $21,430.35
$21,480.01 $23,856.27
-----------------------------------------------
GATEWAY SMALL CAP INDEX FUND
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999
-----------------------------------------------
One Year 29.13%
------------------------ ----------------------
Five Years 16.48%
------------------------ ----------------------
Life of Fund 12.38%
------------------------ ----------------------
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
<PAGE> 55
- --------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - December 31, 1999
- --------------------------------------------------------------------------------
Shares Common Stocks Value
- -----------------------------------------------------------------------
AEROSPACE & EQUIPMENT - 1.14%
1,700 BE Aerospace, Inc. * $14,450
2,600 Cordant Technologies Inc. 85,638
1,600 Kaman Corporation 20,600
2,700 Teleflex Incorporated 84,544
-------
205,232
-------
APPAREL - 0.99%
1,300 Brown Shoe Company 18,322
2,000 Kellwood Company 38,813
2,400 Nautica Enterprises, Inc. * 27,225
1,700 The Gymboree Corporation * 9,722
3,200 The Stride Rite Corporation 20,800
3,700 WestPoint Stevens Inc. 64,750
-------
179,632
-------
AUTOMOBILES & PARTS - 0.73%
1,800 Arvin Industries, Inc. 50,906
1,700 CLARCOR Inc. 30,494
1,900 Superior Industries International, Inc. 50,825
-------
132,225
-------
BUILDING MATERIALS & CONSTRUCTION - 1.15%
3,300 Kaufman and Broad Home Corporation 79,613
3,700 Lennar Corporation 60,125
3,000 Pulte Corporation 67,406
-------
207,144
-------
BUSINESS SERVICES & SUPPLIES - 1.58%
3,400 AMRESCO, Inc. * 4,834
6,500 CompUSA Inc. * 33,110
4,200 Coventry Health Care, Inc. * 28,481
1,927 Information Resources, Inc. * 17,825
1,966 Per-Se Technologies, Inc. * 16,527
2,900 Pittston Brink's Group 63,528
2,100 Rollins, Inc. 31,434
3,400 The Profit Recovery Group International, Inc. * 90,206
-------
285,945
-------
See accompanying notes to financial statements
6
<PAGE> 56
- --------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - December 31, 1999
- --------------------------------------------------------------------------------
Shares Common Stocks Value
- ---------------------------------------------------------------------
CHEMICALS - 1.84%
3,500 AgriBioTech, Inc. * $ 8,477
4,900 Airgas, Inc. * 46,550
700 Chemed Corporation 19,972
5,900 Ethyl Corporation 23,047
1,000 Fuller (H. B.) Company 56,094
2,200 Georgia Gulf Corporation 66,688
5,000 Grace (W. R.) and Company * 69,219
2,600 IDEXX Laboratories, Inc. * 42,088
--------
332,135
--------
COMPUTER SOFTWARE & PERIPHERALS - 25.26%
2,900 American Management Systems, Incorporated * 90,716
8,500 BEA Systems, Inc. * 595,264
2,500 Beyond.com Corporation * 19,453
700 Bottomline Technologies, Inc. * 25,244
5,400 BroadVision, Inc. * 918,336
4,200 Cambridge Technology Partners, Inc. * 110,381
2,400 Cerner Corporation * 47,175
4,100 CHS Electronics, Inc. * 4,869
1,400 Digital River, Inc. * 46,681
2,230 Hyperion Solutions Corporation * 97,075
2,500 IDT Corporation * 47,266
19,200 Iomega Corporation * 63,600
3,400 Macromedia, Inc. * 248,625
4,500 Mentor Graphics Corporation * 58,922
2,300 Network Solutions, Inc. * 500,464
2,300 New Era of Networks, Inc. * 109,825
1,600 OneMain.com, Inc. * 23,900
2,500 Open Market, Inc. * 112,891
2,300 Polycom, Inc. * 146,841
1,800 Proxicom, Inc. * 223,594
2,000 Remedy Corporation * 95,125
5,200 S3 Incorporated * 59,963
1,900 Shared Medical Systems Corporation 96,781
2,524 Structural Dynamics Research Corporation * 32,260
5,700 Sybase, Inc. * 96,722
4,100 Symantec Corporation * 240,747
See accompanying notes to financial statements
7
<PAGE> 57
- --------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - December 31, 1999
- --------------------------------------------------------------------------------
Shares Common Stocks Value
- ----------------------------------------------------------------------
COMPUTER SOFTWARE & PERIPHERALS (Continued)
1,800 TheGlobe.com, Inc. * $ 15,047
3,900 Whittman-Hart, Inc. * 209,260
1,500 WorldGate Communications * 71,297
2,000 Xircom, Inc. * 150,000
---------
4,558,324
---------
ELECTRONICS & COMPUTERS - 15.07%
5,400 Advanced Fibre Communications * 241,988
2,600 Antec Corporation * 94,981
3,400 Aspect Communications Corporation * 133,025
2,500 Baldor Electric Company 45,235
2,800 C Cube Microsystems, Inc. * 175,175
4,600 Cirrus Logic, Inc. * 61,094
7,600 Cypress Semiconductor Corporation * 246,050
4,700 Digital Microwave Corporation * 110,303
1,800 Dycom Industries, Inc. * 79,313
4,400 Glenayre Technologies, Inc. * 49,363
1,700 Hutchinson Technology Inc. * 36,284
6,400 Integrated Device Technology, Inc. * 185,400
2,800 KEMET Corporation * 126,088
2,800 Lam Research Corporation * 312,550
3,400 Lattice Semiconductor Corporation * 160,969
1,200 Oak Industries Inc. * 127,350
5,000 Pairgain Technologies, Inc. * 70,782
2,700 RSA Security Inc. * 209,166
2,100 SpeedFam-IPEC, Inc. * 27,234
3,400 Western Wireless Corporation * 226,738
---------
2,719,088
---------
ENERGY - 3.85%
2,300 Barrett Resources Corporation * 67,706
10,300 Harken Energy Corporation * 8,047
4,000 Marine Drilling Companies, Inc. * 89,625
11,700 Ocean Energy, Inc. * 90,675
2,200 ONEOK, Inc. 55,138
5,400 Parker Drilling Company * 16,875
2,800 Pogo Producing Company 57,400
See accompanying notes to financial statements
8
<PAGE> 58
- --------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - December 31, 1999
- --------------------------------------------------------------------------------
Shares Common Stocks Value
- -------------------------------------------------------------------
ENERGY (Continued)
4,200 Pride International, Inc.* $ 61,031
5,800 Rowan Companies, Inc. * 125,425
2,200 Southwest Gas Corporation 50,531
2,300 Tesoro Petroleum Corporation * 26,594
4,600 Varco International, Inc. * 46,719
--------
695,766
--------
FINANCE, INSURANCE, & REAL ESTATE - 12.93%
6,100 20th Century Industries 117,806
1,800 Advanta Corporation 32,794
4,300 Allied Capital Corporation 78,610
5,100 AmeriCredit Corp. * 94,350
2,800 Arcadia Financial Ltd. * 12,425
2,200 Bank United Corp. 59,331
1,600 BankNorth Group, Inc. 43,100
7,500 Catellus Development Corporation * 95,156
3,200 City National Corporation 105,300
3,500 Community First Bankshares, Inc. 54,906
3,200 Credit Acceptance Corporation * 11,900
2,400 Data Broadcasting Corporation * 19,763
3,000 Doral Financial Corporation 36,938
2,700 Enhance Financial Services Group Inc. 43,538
6,300 FiNet.com, Inc. * 8,170
4,600 First American Financial Corporation 57,069
1,900 Foremost Corporation of America 53,794
4,900 Freemont General Corporation 36,138
2,400 Frontier Insurance Group, Inc. 8,175
2,300 Imperial Credit Industries, Inc. * 14,375
4,800 Independence Community Bank Corp. 59,850
3,500 Mid Atlantic Medical Services, Inc. * 28,985
1,200 National Discount Brokers Group, Inc. * 31,613
1,600 Nationwide Financial Services, Inc. 44,700
2,100 Net.Bank, Inc. * 39,309
5,700 Oxford Health Plans, Inc. * 72,497
1,765 Provident Bankshares Corporation 30,722
2,600 Radian Group Inc. 124,150
3,300 Raymond James Financial, Inc. 61,566
8,100 Reliance Group Holdings, Inc. 53,916
2,000 Riggs National Corporation 26,375
4,000 Rollins Truck Leasing Corp. 47,375
5,400 Roslyn Bancorp, Inc. 99,394
See accompanying notes to financial statements
9
<PAGE> 59
- --------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - December 31, 1999
- --------------------------------------------------------------------------------
Shares Common Stocks Value
- ----------------------------------------------------------------------
FINANCE, INSURANCE, & REAL ESTATE (Continued)
1,600 Siebert Financial Corp. $ 23,550
1,600 Silicon Valley Banchares * 79,300
2,600 Telebanc Financial Corporation * 67,356
1,400 The Liberty Corporation 59,063
3,700 Unicapital Corporation * 13,528
3,000 UST Corp. 95,156
4,226 Valley National Bancorp 118,053
3,853 Washington Federal, Inc. 75,856
2,600 Westamerica Bancorporation 72,719
1,200 Zenith National Insurance Corp. 24,675
---------
2,333,346
---------
FOOD, BEVERAGE, & TOBACCO - 0.91%
4,600 Chiquita Brands International 22,425
1,900 Dreyer's Grand Ice Cream, Inc. 32,122
3,000 Earthgrains Company 48,656
1,300 International Multifoods Corporation 17,266
2,200 Ralcorp Holdings, Inc. * 43,725
---------
164,194
---------
HEALTH - 5.09%
1,900 Acuson Corporation * 23,869
2,000 Beckman Coulter Inc. 101,625
1,608 Block Drug Company Inc. 49,645
2,300 Cephalon, Inc. * 79,781
3,700 DENTSPLY International Inc. 87,644
1,000 Diagnostic Products Corporation 24,500
3,100 Gilead Sciences, Inc. * 167,594
1,900 Haemonetics Corporation * 45,303
2,500 MedQuist Inc. * 64,297
4,700 NBTY, Inc. * 51,994
5,100 Perrigo Company * 40,960
5,300 PhyCor, Inc. * 9,606
4,500 Rexall Sundown, Inc. * 46,547
3,300 Summit Technology, Inc. * 38,053
1,000 The West Pharmaceutical Services, Inc. 30,875
5,700 Total Renal Care Holdings, Inc. * 37,941
2,200 Twinlab Corporation * 17,531
---------
917,765
---------
See accompanying notes to financial statements
10
<PAGE> 60
- --------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - December 31, 1999
- --------------------------------------------------------------------------------
Shares Common Stocks Value
- -----------------------------------------------------------------------
MACHINERY & RELATED PRODUCTS - 1.76%
1,600 Gerber Scientific, Inc. $ 35,100
2,100 Kennametal Inc. 70,613
1,600 Kulicke and Soffa Industries * 68,050
2,600 Milacron Inc. 39,813
600 NACCO Industries, Inc. 33,281
4,800 Newpark Resources Inc. * 29,250
2,300 Silicon Valley Group, Inc. * 40,897
--------
317,004
--------
MINING & METALS - 1.21%
3,200 Donaldson Company, Inc. 76,400
2,800 Stillwater Mining Company * 89,688
2,600 Wyman Gordon Co. * 52,000
--------
218,088
--------
MISCELLANEOUS - 2.23%
1,700 Avid Technology, Inc. * 22,153
3,100 Aztar Corporation * 33,519
5,300 Callaway Golf Company 93,578
2,800 Kimball International, Inc. 46,550
1,800 Marketing Services Group, Inc. * 30,206
8,200 PetsMart, Inc. * 46,382
4,200 Playtex Products, Inc. * 64,444
2,900 Station Casinos, Inc. * 64,978
--------
401,810
--------
OTHER CONSUMER DURABLES - 2.30%
3,800 Acclaim Entertainment * 19,594
2,109 Albany International Corp. * 32,431
900 Bassett Furniture Industries, Incorporated 14,203
2,900 GenCorp Inc. 28,547
4,200 Hon Industries Inc. 91,875
3,700 La-Z-Boy Incorporated 62,091
4,250 Mohawk Industries, Inc. * 112,094
400 NCH Corporation 17,813
1,400 Russ Berrie and Company, Inc. 36,575
--------
415,223
--------
See accompanying notes to financial statements
11
<PAGE> 61
- --------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - December 31, 1999
- --------------------------------------------------------------------------------
Shares Common Stocks Value
- ----------------------------------------------------------------
OTHER INDUSTRIAL CYCLICALS - 2.48%
2,000 ACX Technologies, Inc. * $ 21,313
2,500 AptarGroup, Inc. 62,656
1,100 Brush Wellman Inc. 18,459
2,100 Carlisle Companies Incorporated 75,666
500 MAXXAM Inc. * 21,406
2,300 Newport News Shipbuilding Inc. 63,250
2,400 Overseas Shipholding Group, Inc. 35,475
1,950 Shorewood Packaging Corporation * 36,684
2,000 The Standard Register Company 38,625
2,700 York International Corporation 73,997
--------
447,531
--------
PAPER & FOREST PRODUCTS - 1.30%
1,200 Chesapeake Corporation 36,563
3,800 Gaylord Container Corporation * 25,769
3,400 Pentair, Inc. 130,794
3,563 Wausau-Mosinee Paper Corporation 41,531
--------
234,657
--------
PRECISION INSTRUMENTS - 1.39%
2,900 Cognex Corporation * 113,010
1,600 Credence Systems Corporation * 138,050
--------
251,060
--------
RETAIL - 3.48%
2,000 Ames Department Stores, Inc. * 57,563
2,100 CDnow, Inc. * 20,836
6,900 Charming Shoppes, Inc. * 45,497
700 Creative Computers, Inc. * 5,163
900 Enesco Group, Inc. 9,872
2,700 Fleming Companies, Inc. 27,591
2,200 Fossil, Inc. * 50,944
1,800 Insight Enterprises, Inc. * 72,844
2,100 Lands' End, Inc. * 72,909
2,500 Micro Warehouse, Inc. * 46,172
1,600 Navarre Corporation * 9,125
3,200 Sunglass Hut International, Inc. * 36,200
1,400 The Dress Barn, Inc. * 23,406
9,600 Venator Group, Inc. * 67,200
1,800 Whole Foods Market, Inc. * 83,138
--------
628,460
--------
See accompanying notes to financial statements
12
<PAGE> 62
- --------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - December 31, 1999
- --------------------------------------------------------------------------------
Shares Common Stocks Value
- ---------------------------------------------------------------------
SERVICES - 6.24%
3,400 Airborne Freight Corporation $ 74,800
1,800 Alaska Air Group, Inc. * 63,281
1,900 Applebee's International, Inc. 55,991
1,700 Arnold Industries, Inc. 23,959
1,900 Banta Corporation 42,750
2,800 Bob Evans Farms, Inc. 43,313
2,384 Chris-Craft Industries, Inc. * 172,095
6,800 Extended Stay America, Inc. * 51,850
8,300 Hollinger International Inc. 107,641
2,200 Houghton Mifflin Company 92,744
2,500 Hunt (J. B.) Transport Services, Inc. 34,610
1,800 Landry's Seafood Restaurants, Inc. * 15,525
2,300 Lone Star Steakhouse & Saloon, Inc. * 20,520
1,600 Luby's, Inc. 18,150
1,000 New England Business Service, Inc. 24,250
2,100 Papa John's International, Inc. * 54,797
2,200 Ruby Tuesday, Inc. 39,875
2,900 Wallace Computer Services, Inc. 48,303
1,700 Yellow Corporation * 28,741
7,200 Ziff Davis, Inc. * 113,625
---------
1,126,820
---------
STEEL & IRON - 0.95%
7,000 AK Steel Holding Corporation 131,032
1,500 Carpenter Technology Corporation 41,109
---------
172,141
---------
UTILITIES - 4.37%
3,700 Brightpoint, Inc. * 48,794
1,200 CH Energy Group, Inc. 39,600
1,400 Eastern Utilities Associates 42,394
3,500 Intermedia Communications Inc. * 135,625
3,775 MDU Resources Group, Inc. 75,618
5,100 Minnesota Power, Inc. 86,541
1,800 Northwest Natural Gas Company 39,319
2,900 Public Service Company of New Mexico 46,944
1,650 Southern Indiana Gas & Electric Co. 37,486
See accompanying notes to financial statements
13
<PAGE> 63
- --------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Common Stocks Value
- ----------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES (Continued)
4,500 Talk.com Inc. * 79,735
2,200 UGI Corporation 44,894
2,280 UniSource Energy Corporation * 25,436
1,600 Viatel, Inc. * 85,700
-----------
788,086
TOTAL COMMON STOCKS - 98.25% 17,731,676
(cost $14,842,770)
REPURCHASE AGREEMENT - 1.79% **
1.00% repurchase agreement with Firstar Bank, N.A.,
dated December 31, 1999, due January 3, 2000 323,000
(repurchase proceeds $323,027) -----------
TOTAL COMMON STOCKS AND REPURCHASE AGREEMENT - 100.04% 18,054,676
OTHER ASSETS AND LIABILITIES, NET - (0.04%) (7,547)
-----------
NET ASSETS - 100.00% $18,047,129
===========
* Denotes a non-income producing security.
** Repurchase agreement fully collateralized by
U. S. Government Agency obligations.
</TABLE>
See accompanying notes to financial statements
14
<PAGE> 64
- --------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Statement of Assets and Liabilities - December 31, 1999
- --------------------------------------------------------------------------------
ASSETS:
Common stocks, at value (original cost $14,842,770) $ 17,731,676
Repurchase agreement 323,000
Receivable for fund shares sold 125,080
Dividend and interest receivable 10,346
Cash 180
Other assets 4,264
------------
18,194,546
------------
LIABILITIES:
Payable for fund shares redeemed 130,816
Other accrued expenses and liabilities 16,601
------------
147,417
------------
NET ASSETS $ 18,047,129
============
NET ASSETS CONSIST OF:
Paid-in capital applicable to 1,321,057 shares outstanding
(unlimited number of shares authorized, no par value) $ 15,232,293
Accumulated realized loss, net (74,070)
Unrealized appreciation, net 2,888,906
------------
$ 18,047,129
============
NET ASSET VALUE, OFFERING, AND REDEMPTION
PRICE PER SHARE $ 13.66
============
See accompanying notes to financial statements
15
<PAGE> 65
- --------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Statement of Operations - For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividend income $ 135,552
Interest income 14,516
-----------
150,068
-----------
EXPENSES:
Investment advisory and management fees 129,346
Transfer agent and accounting fees 78,352
Custodian fees 24,584
Registration fees 19,641
Reports to shareholders 16,026
Professional fees 12,717
Trustees' fees 7,172
Other expenses 5,326
-----------
293,164
Fees waived (81,545)
-----------
Net operating expenses 211,619
-----------
NET INVESTMENT LOSS (61,551)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on investments:
Securities 1,717,317
Put options expired and closed (195,346)
-----------
1,521,971
-----------
Change in unrealized appreciation/depreciation of investments:
Securities 2,346,635
Put options 25,865
-----------
2,372,500
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 3,894,471
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,832,920
===========
See accompanying notes to financial statements
16
<PAGE> 66
- --------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment loss $ (61,551) $ (65,150)
Net realized gain on investments 1,521,971 1,567,045
Net change in unrealized appreciation/depreciation of investments 2,372,500 (1,997,731)
------------ ------------
Net increase (decrease) in net assets resulting from operations 3,832,920 (495,836)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gain on investments (1,485,231) (1,578,731)
In excess of net realized gain on investments -- (49,259)
------------ ------------
Decrease in net assets from dividends and distributions (1,485,231) (1,627,990)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 13,401,113 3,490,541
Net asset value of shares issued in reinvestment of
dividends and distributions 1,418,124 1,551,351
Payments for shares redeemed (13,247,375) (4,601,589)
------------ ------------
Net increase in net assets from fund shares transactions 1,571,862 440,303
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS 3,919,551 (1,683,523)
NET ASSETS:
Beginning of year 14,127,578 15,811,101
------------ ------------
End of year $ 18,047,129 $ 14,127,578
============ ============
FUND SHARE TRANSACTIONS:
Shares sold 1,048,860 306,934
Shares issued in reinvestment of dividends and distributions 105,124 117,956
Shares redeemed (1,057,918) (373,223)
------------ ------------
NET INCREASE IN SHARES OUTSTANDING 96,066 51,667
============ ============
</TABLE>
See accompanying notes to financial statements
17
<PAGE> 67
- --------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Financial Highlights - Per Share Data for a Share Outstanding Throughout
Each Year
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995 (1)
---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.53 $ 13.48 $ 12.06 $ 11.05 $ 9.63
------- ------- ------- ------- ------
Net investment income (loss) (0.05) (0.05) (0.02) 0.01 0.03
Net gain (loss) on investments 3.39 (0.41) 2.51 1.87 2.07
------- ------- ------- ------- ------
Total from investment operations 3.34 (0.46) 2.49 1.88 2.10
------- ------- ------- ------- ------
Dividends from net investment income -- -- -- (0.01) (0.01)
Distributions from net realized gain (1.21) (1.45) (1.07) (0.86) (0.67)
Distributions in excess of
net realized gain -- (0.04) -- -- --
------- ------- ------- ------- ------
Total distributions (1.21) (1.49) (1.07) (0.87) (0.68)
------- ------- ------- ------- ------
Net asset value, end of year $ 13.66 $ 11.53 $ 13.48 $ 12.06 $11.05
======= ======= ======= ======= ======
TOTAL RETURN 29.13% (3.40%) 20.64% 17.04% 21.81%
Net assets, end of year (thousands) $18,047 $14,128 $15,811 $10,921 $9,418
Ratio of expenses to average net assets 1.47% (2) 1.50% 1.50% 1.50% 1.68%
Ratio of net investment income (loss)
to average net assets (0.43%)(2) (0.42%) (0.19%) 0.03% 0.09%
Portfolio turnover rate 64% 30% 32% 20% 20%
</TABLE>
(1) On December 15, 1995, Gateway Investment Advisers, L.P. succeeded Gateway
Investment Advisers, Inc. as investment adviser to the Fund.
(2) The ratio of expenses to average net assets would have increased and the
ratio of net investment income to average net assets would have decreased by
0.03% in 1999 had the Adviser not voluntarily waived fees. The 1999
voluntary fee waiver is not expected to recur.
See accompanying notes to financial statements
18
<PAGE> 68
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
- --------------------------------------------------------------------------------
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 was $15,008,501 at December 31, 1999;
gross unrealized appreciation totaled $4,972,427 and gross unrealized
depreciation totaled $2,249,252.
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 year ended December 31, 1999,
the Fund reclassified $61,551 from undistributed net investment income to
accumulated net realized loss. This reclassification, which had no impact on net
assets or net asset value per share, is due to the utilization of net investment
loss against short-term capital gains.
19
<PAGE> 69
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
- --------------------------------------------------------------------------------
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.
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.
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 year ended December 31, 1999, the Adviser waived
investment advisory and management fees of $81,545, including $4,315 of
voluntary fee waivers.
At December 31, 1999, the Adviser held in a fiduciary capacity, 36% of the
Fund's outstanding shares.
3. SECURITIES TRANSACTIONS
For the year ended December 31, 1999, purchases of investment securities
(excluding short-term investments) totaled $8,947,048, and proceeds from sales
totaled $9,148,854.
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.
4. BANK LOANS
The Fund has an uncommitted $1,000,000 bank line of credit to be used as a
temporary liquidity source for meeting redemption requests. Borrowings under
this arrangement, expiring October 31, 2000, bear interest at the bank's prime
rate minus 0.5%. There are no fees associated with maintaining this facility.
For the year ended December 31, 1999, there were no borrowings on this line of
credit.
20
<PAGE> 70
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of the Gateway Small Cap Index Fund of
The Gateway Trust:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the Gateway Small Cap Index Fund (one of the
funds constituting The Gateway Trust) as of December 31, 1999, and the related
statement of operations, the statements of changes in net assets, and the
financial highlights for the periods indicated thereon. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Gateway Small Cap Index Fund of The Gateway Trust as of December 31, 1999, the
results of its operations, the changes in its net assets, and the financial
highlights for the periods indicated thereon, in conformity with generally
accepted accounting principles.
Cincinnati, Ohio Arthur Andersen LLP
January 19, 2000
21
<PAGE> 71
- --------------------------------------------------------------------------------
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 Bank, N.A.
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> 72
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
