<PAGE> 1
GATEWAY
FUND
Semi-Annual Report
June 30, 2000
(Unaudited)
THE GATEWAY TRUST
P. O. BOX 5211
CINCINNATI, OH 45201-5211
(800) 354-6339
<PAGE> 2
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GATEWAY FUND
Highlights at June 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
--------------------------------------------------
Past One Three Five Ten Since Inception Price
Quarter Year Years Years Years on 12/7/77 Per Share
------- ---- ----- ----- ----- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
GATEWAY FUND 2.86% 11.38% 12.81% 11.86% 10.49% 10.67% $25.16
Salomon Broad Investment-Grade
Medium-Term (1-10) Index 1.94 4.56 5.79 6.10 7.51
S&P 500 Index (2.66) 7.25 19.66 23.79 17.78
<CAPTION>
CUMULATIVE TOTAL RETURN
--------------------------------------------------
Past One Three Five Ten Since Inception
Quarter Year Years Years Years on 12/7/77
------- ---- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
GATEWAY FUND 2.86% 11.38% 43.58% 75.10% 171.24% 885.13%
Salomon Broad Investment-Grade
Medium-Term (1-10) Index 1.94 4.56 18.38 34.48 106.24
S&P 500 Index (2.66) 7.25 71.34 190.72 413.90
</TABLE>
Data sources throughout this report: Gateway Investment Advisers, L.P. and
TowersData
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
--------------------------------------------------------------------------------
As the first half of the new millennium unfolded, investors sensed a change in
the financial markets. Favorable economic news, unchecked by any semblance of
consumer restraint, motivated the Federal Reserve Board to raise interest rates
in an effort to slow down an over-heated economy. Investors responded by taking
profits, and five years of consecutive double-digit returns from the S&P 500
Index came to an end.
We are pleased to report that Portfolio Manager Patrick Rogers and Gateway's
management professionals continued to produce steady returns and, importantly,
avoided losses in an increasingly volatile, uncertain environment for large
capitalization, blue chip stocks. For our risk-sensitive investors, Gateway
exhibited risk characteristics similar to the Salomon Broad Investment-Grade
Medium-Term (1-10) Index, while delivering materially favorable comparative
returns.
During the first half of the year, both existing and new investors benefited
from the Gateway Fund's attractive risk/reward characteristics. Total assets
increased from $922 million at year-end 1999, to $1.3 billion at June 30, 2000,
with the majority of those assets added since January. Increased stature and
size of the Fund is gratifying and increases its trading efficiency.
Early in the first half of the year, the ongoing effort to convert the Fund's
portfolio to the S&P 500 Index from the S&P 100 Index was completed. 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.
We are pleased to report that you can now access general information regarding
the Fund on the Internet. The Fund's web site, www.gatewayfund.com, contains
current information about the Fund and the hedging markets in which it
participates.
As we move into the second half of the year, your Fund continues to benefit from
excellent cash flows from hedging transactions. Market volatility supports these
cash flows. We look forward to the second half with enthusiasm.
Cordially,
/s/ Walter G. Sall
Walter G. Sall
Chairman
2
<PAGE> 4
--------------------------------------------------------------------------------
GATEWAY FUND
Portfolio Manager's Report
--------------------------------------------------------------------------------
The first half of 2000 was a challenging environment to test the merits of the
strategy behind the Gateway Fund. I am pleased to report we weathered the
turbulent markets well, producing results in line with our historical
performance.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
GATEWAY FUND SALOMON BROAD INVESTMENT-GRADE S&P 500
MONTH (GATEX) MEDIUM-TERM (1-10) INDEX INDEX
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
January 0.46% (0.52%) (5.02%)
-----------------------------------------------------------------------------------------------------------
February 0.38 0.93 (1.89)
-----------------------------------------------------------------------------------------------------------
March 2.47 1.04 9.78
-----------------------------------------------------------------------------------------------------------
April 0.37 (0.10) (3.01)
-----------------------------------------------------------------------------------------------------------
May 0.37 0.10 (2.05)
-----------------------------------------------------------------------------------------------------------
June 2.11 1.93 2.47
-----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
AS OF JUNE 30, 2000
-----------------------------------------------------------------------------------------------------------
GATEWAY FUND SALOMON BROAD INVESTMENT-GRADE S&P 500
(GATEX) MEDIUM-TERM (1-10) INDEX INDEX
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
One Year 11.38% 4.56% 7.25%
-----------------------------------------------------------------------------------------------------------
Three Years 12.81 5.79 19.66
-----------------------------------------------------------------------------------------------------------
Five Years 11.86 6.10 23.79
-----------------------------------------------------------------------------------------------------------
Ten Years 10.49 7.51 17.78
-----------------------------------------------------------------------------------------------------------
</TABLE>
The objective of the Fund is to capture the higher returns associated with
equity investing, while exposing investors to significantly less risk. Because
of our lower risk approach to investing, the Gateway Fund is often compared to
other more conservative funds, such as bond funds. As such, we include
performance statistics for the Salomon Broad Investment-Grade Medium-Term (1-10)
Index. This index is an excellent proxy for returns earned by intermediate
bonds.
3
<PAGE> 5
--------------------------------------------------------------------------------
GATEWAY FUND
Portfolio Manager's Report
--------------------------------------------------------------------------------
The Gateway Fund has been able to outperform the fixed income market by a fairly
wide margin over the past ten years, and it has continued thus far in 2000.
FIRST HALF OF 2000 IN REVIEW
The equity market produced sharp volatility during the first quarter of this
year. Despite non-existent Y2K problems, the stock market sold off rather
dramatically through January and February. Much of the weakness was in response
to the Federal Reserve Board's decision to increase interest rates in order to
slow down our domestic economy. Conversely, the month of March, particularly the
last two weeks, produced strong enough results for the market (as measured by
the S&P 500) to net out a positive gain for the first quarter of 2000.
Despite this roller coaster ride by the market, the Gateway Fund produced a
positive rate of return for each month of the first quarter. For the three
months ended March 31, the Gateway Fund earned 3.34%, outpacing the S&P 500's
performance of 2.29% and the 1.45% return produced by the Salomon Broad
Investment-Grade Medium-Term (1-10) Index.
The second quarter began in a similar way as the first quarter. With increasing
interest rates weighing heavily on the stock market, the S&P 500 produced
negative results for the months of April and May. In June as the economy
responded by slowing down, the Fed decided not to increase rates, and the
markets advanced. However, unlike the first quarter, this late-in-the-quarter
rally was not sufficient to offset the earlier losses. For the quarter, the S&P
500 was down 2.66%.
Once again, the Gateway Fund produced very consistent performance throughout the
quarter, as each month witnessed a gain in our Fund. For the quarter ended June
30, the Gateway Fund produced a total return of 2.86%.
4
<PAGE> 6
--------------------------------------------------------------------------------
GATEWAY FUND
Portfolio Manager's Report
--------------------------------------------------------------------------------
LOOKING FORWARD -- PROSPECTS FOR THE THIRD QUARTER AND BEYOND
As we move into the third quarter of 2000, the financial markets are reflecting
greater uncertainty. Long-term interest rates are stable while short-term
interest rates are rising, providing us with an inverted yield curve --
traditionally an unstable market condition. Major stock sectors are showing
increased uncertainty manifested by high and unpredictable volatility.
Consequently, risk control is of the utmost importance. At June 30, the
annualized cash flows from near-term, at-the-money index call options were
approximately 24%, providing both excellent expected return and downside
protection for the Fund. Moreover, we are maintaining a full position in market
index puts. The combination of generous cash flows and a strong protective put
position augurs well for success in the third quarter and beyond.
We appreciate your support and confidence in us.
/s/ J. Patrick Rogers
J. Patrick Rogers, CFA
Portfolio Manager
5
<PAGE> 7
--------------------------------------------------------------------------------
GATEWAY FUND
Portfolio Manager's Report
--------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
June 30, 1990 - June 30, 2000
[LINE GRAPH]
PLOT POINTS FOR CHART
SALOMON BROAD
INVESTMENT-GRADE
MEDIUM-TERM (1-10)
GATEWAY FUND S&P 500 INDEX INDEX
$10,000.00 $10,000.00 $10,000.00
$10,043.08 $ 9,967.90 $10,154.00
$ 9,630.77 $ 9,067.80 $10,094.09
$ 9,538.79 $ 8,627.10 $10,177.87
$ 9,557.36 $ 8,590.87 $10,290.85
$10,114.46 $ 9,144.98 $10,471.97
$10,392.60 $ 9,399.21 $10,628.00
$10,781.18 $ 9,807.14 $10,752.35
$10,948.81 $10,507.37 $10,820.09
$11,055.01 $10,761.86 $10,900.15
$11,085.63 $10,787.36 $11,023.33
$11,300.00 $11,251.22 $11,100.49
$11,238.82 $10,735.80 $11,116.03
$11,461.91 $11,236.19 $11,267.21
$11,661.91 $11,501.37 $11,473.40
$11,730.72 $11,308.95 $11,684.51
$11,900.81 $11,460.94 $11,830.56
$11,738.96 $11,000.21 $11,948.87
$12,241.39 $12,256.44 $12,227.28
$12,217.28 $12,028.10 $12,112.34
$12,353.86 $12,183.26 $12,186.23
$12,297.04 $11,946.91 $12,135.05
$12,498.71 $12,296.95 $12,249.11
$12,539.08 $12,357.45 $12,447.55
$12,522.78 $12,173.57 $12,621.82
$12,700.60 $12,670.26 $12,811.14
$12,700.60 $12,411.78 $12,963.60
$12,692.98 $12,557.62 $13,111.38
$12,774.22 $12,600.32 $12,964.53
$12,962.00 $13,028.73 $12,950.27
$12,871.26 $13,188.59 $13,117.33
$13,012.85 $13,298.85 $13,350.82
$13,113.05 $13,480.11 $13,523.05
$13,071.61 $13,764.54 $13,586.60
$13,096.58 $13,431.85 $13,693.94
$13,229.90 $13,790.48 $13,693.94
$13,304.91 $13,830.89 $13,880.18
$13,380.22 $13,775.29 $13,924.59
$13,564.46 $14,297.92 $14,083.33
$13,505.87 $14,188.26 $14,128.40
$13,632.01 $14,481.81 $14,162.31
$13,682.45 $14,343.80 $14,105.66
$13,824.75 $14,517.22 $14,187.47
$14,060.25 $15,010.80 $14,339.28
$13,929.41 $14,604.01 $14,180.11
$13,467.13 $13,968.74 $13,899.34
$13,589.80 $14,147.81 $13,809.00
$13,861.42 $14,378.42 $13,835.24
$13,651.14 $14,026.01 $13,825.55
$14,038.40 $14,486.62 $14,042.61
$14,267.24 $15,079.13 $14,081.93
$14,276.04 $14,711.19 $13,932.66
$14,514.71 $15,040.73 $13,931.27
$14,267.20 $14,492.94 $13,869.97
$14,594.27 $14,707.87 $13,947.64
$14,839.39 $15,089.25 $14,215.44
$15,056.23 $15,676.22 $14,528.18
$15,207.08 $16,138.82 $14,603.72
$15,330.17 $16,613.31 $14,787.73
$15,434.42 $17,276.18 $15,247.63
$15,491.53 $17,677.50 $15,342.17
$15,586.63 $18,262.63 $15,355.97
$15,662.70 $18,308.47 $15,492.64
$15,833.90 $19,081.08 $15,608.84
$15,881.65 $19,012.97 $15,774.29
$16,101.30 $19,845.73 $15,977.78
$16,205.47 $20,227.96 $16,153.53
$16,416.30 $20,916.52 $16,290.84
$16,358.85 $21,110.42 $16,126.30
$16,483.50 $21,313.71 $16,050.51
$16,694.99 $21,627.88 $15,978.28
$16,839.23 $22,183.71 $15,970.29
$16,983.37 $22,268.23 $16,152.35
$16,713.51 $21,284.42 $16,205.66
$16,944.82 $21,733.31 $16,217.00
$17,339.98 $22,954.72 $16,460.25
$17,552.56 $23,587.81 $16,764.77
$17,852.19 $25,368.69 $16,984.39
$17,912.17 $24,866.14 $16,890.97
$18,212.56 $26,417.79 $16,990.63
$18,231.86 $26,626.49 $17,011.02
$18,126.12 $25,534.80 $16,893.64
$18,495.53 $27,056.67 $17,106.50
$18,641.27 $28,701.72 $17,255.33
$18,894.05 $29,987.56 $17,429.61
$19,234.90 $32,371.57 $17,774.71
$18,913.48 $30,558.11 $17,705.39
$19,488.07 $32,229.64 $17,914.32
$19,185.62 $31,151.88 $18,107.79
$19,819.89 $32,593.90 $18,156.68
$20,124.33 $33,153.54 $18,312.83
$20,444.71 $33,518.23 $18,530.75
$20,743.61 $35,935.56 $18,538.17
$20,946.48 $37,775.82 $18,610.46
$21,160.35 $38,155.85 $18,705.38
$21,299.37 $37,499.95 $18,840.06
$21,620.14 $39,023.20 $18,945.56
$21,577.33 $38,609.55 $19,025.13
$20,485.08 $33,034.33 $19,266.75
$21,074.03 $35,150.51 $19,644.38
$21,803.40 $38,009.66 $19,630.63
$22,403.00 $40,313.42 $19,665.96
$22,591.41 $42,636.28 $19,754.46
$22,966.42 $44,419.33 $19,878.91
$22,998.58 $43,038.78 $19,670.18
$23,450.04 $44,760.76 $19,817.71
$23,837.43 $46,494.34 $19,896.98
$23,934.21 $45,396.61 $19,747.75
$24,354.02 $47,916.12 $19,733.93
$24,192.55 $46,421.14 $19,670.78
$24,321.74 $46,189.03 $19,674.72
$24,354.09 $44,922.99 $19,920.65
$24,935.18 $47,765.72 $19,984.40
$25,204.23 $48,736.80 $20,010.38
$25,519.53 $51,607.39 $19,952.35
$25,636.92 $49,016.70 $19,848.59
$25,734.34 $48,090.29 $20,033.19
$26,369.98 $52,793.52 $20,241.53
$26,467.55 $51,204.43 $20,221.29
$26,565.48 $50,154.74 $20,241.51
$27,126.01 $51,393.56 $20,632.17
-----------------------------------------------
GATEWAY FUND
AVERAGE ANNUAL TOTAL RETURNS
AS OF JUNE 30, 2000
-----------------------------------------------
One Year 11.38%
-----------------------------------------------
Five Years 11.86%
-----------------------------------------------
Ten Years 10.49%
-----------------------------------------------
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
--------------------------------------------------------------------------------
GATEWAY FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares COMMON STOCKS - 97.9% Value (000's)
------ -------------
<S> <C> <C>
CONSUMER DISCRETIONARY - 10.6%
6,100 American Greetings Corporation - Class A $ 116
14,000 AutoZone, Inc.* 308
13,300 Bed Bath & Beyond Inc.* 482
21,000 Best Buy Co., Inc.* 1,328
9,500 Black & Decker Corporation 373
10,600 Brunswick Corporation 176
62,300 Carnival Corporation 1,215
5,500 Centex Corporation 129
20,500 Circuit City Stores-Circuit City Group 680
34,200 Clear Channel Communications, Inc.* 2,565
93,500 Comcast Corporation - Class A* 3,787
10,500 Consolidated Stores Corporation* 126
7,200 Cooper Tire & Rubber Company 80
44,900 Costco Wholesale Corporation* 1,482
15,600 Dana Corporation 331
11,900 Darden Restaurants, Inc. 193
56,993 Delphi Automotive Systems Corporation 830
9,700 Dillard's, Inc. - Class A 119
30,625 Dollar General Corporation 597
8,300 Dow Jones & Company, Inc. 608
31,900 Eastman Kodak Company 1,898
21,200 Federated Department Stores, Inc.* 716
123,800 Ford Motor Company 5,323
15,600 Fortune Brands, Inc. 360
28,100 Gannett Co., Inc. 1,681
85,950 Gap, Inc. 2,686
62,200 General Motors Corporation 3,611
15,800 Goodyear Tire & Rubber Company 316
7,400 Harcourt General, Inc. 402
30,600 Harley-Davidson, Inc. 1,178
11,100 Harrah's Entertainment, Inc.* 232
16,300 Hasbro, Inc. 246
31,100 Hilton Hotels Corporation 292
237,550 Home Depot, Inc. 11,863
31,000 Interpublic Group of Companies, Inc. 1,333
26,300 J. C. Penney Company, Inc. 485
</TABLE>
See accompanying notes to financial statements 7
<PAGE> 9
--------------------------------------------------------------------------------
GATEWAY FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value (000's)
------ -------------
CONSUMER DISCRETIONARY (CONTINUED)
<S> <C> <C>
8,100 Johnson Controls, Inc. $ 416
4,600 Kaufman and Broad Home Corporation 91
56,500 Kmart Corporation* 385
8,000 Knight-Ridder, Inc. 426
32,900 Kohl's Corporation* 1,830
18,600 Leggett & Platt, Incorporated 307
49,800 Limited, Inc. 1,077
5,500 Liz Claiborne Inc. 194
38,600 Lowe's Companies, Inc. 1,585
25,100 Marriott International, Inc. - Class A 905
39,900 Mattel, Inc. 526
33,600 May Department Stores Company 806
7,100 Maytag Corporation 262
136,700 McDonald's Corporation 4,503
19,800 McGraw-Hill Companies, Inc. 1,069
4,900 Meredith Corporation 165
17,300 New York Times Company - Class A 683
28,500 Newell Rubbermaid Inc. 734
27,900 NIKE, Inc. - Class B 1,111
11,700 Nordstrom, Inc. 282
33,200 Office Depot, Inc.* 208
17,900 Omnicom Group Inc. 1,594
4,900 Polaroid Corporation 88
4,200 Pulte Corporation 91
22,200 RadioShack Corporation 1,052
5,500 Reebok International Ltd.* 88
3,300 Russell Corporation 66
43,800 Seagram Company Ltd. 2,540
36,700 Sears, Roebuck and Co. 1,197
16,700 Sherwin-Williams Company 354
5,400 Snap-on Incorporated 144
1,700 Springs Industries, Inc. - Class A 55
8,300 Stanley Works 197
47,400 Staples, Inc.* 729
18,400 Starbucks Corporation* 703
46,800 Target Corporation 2,714
</TABLE>
8 See accompanying notes to financial statements
<PAGE> 10
--------------------------------------------------------------------------------
GATEWAY FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value (000's)
------ -------------
CONSUMER DISCRETIONARY (CONTINUED)
<S> <C> <C>
7,300 Tiffany & Co. $ 493
135,100 Time Warner Inc. 10,268
31,300 TJX Companies, Inc. 587
27,900 Toys R Us, Inc.* 406
38,500 Tribune Company 1,347
14,300 Tricon Global Restaurants, Inc.* 404
11,500 TRW Inc. 499
5,500 Tupperware Corporation 121
11,900 VF Corporation 283
156,641 Viacom Inc. - Class B* 10,681
16,210 Visteon Corp. 197
457,700 Wal-Mart Stores, Inc. 26,375
213,400 Walt Disney Company 8,282
11,100 Wendy's International, Inc. 198
7,100 Whirlpool Corporation 331
6,800 Young & Rubicam Inc. 389
-----------
138,185
-----------
CONSUMER STAPLES - 6.4%
3,400 Adolph Coors Company - Class B 206
5,300 Alberto-Culver Company - Class B 162
43,500 Albertson's, Inc. 1,446
47,000 Anheuser-Busch Companies 3,510
56,155 Archer-Daniels-Midland Company 551
30,100 Avon Products, Inc. 1,339
28,200 Bestfoods 1,953
6,900 Brown-Forman Corporation - Class B 371
41,400 Campbell Soup Company 1,206
23,900 Clorox Company 1,071
254,200 Coca-Cola Company 14,601
43,000 Coca-Cola Enterprises Inc. 701
58,800 Colgate-Palmolive Company 3,521
49,700 ConAgra, Inc. 947
39,600 CVS Corporation 1,584
20,500 Fort James Corporation 474
30,400 General Mills, Inc. 1,163
</TABLE>
See accompanying notes to financial statements 9
<PAGE> 11
--------------------------------------------------------------------------------
GATEWAY FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value (000's)
------ -------------
CONSUMER STAPLES (CONTINUED)
<S> <C> <C>
108,300 Gillette Company $ 3,784
3,900 Great Atlantic & Pacific Tea Company, Inc. 65
36,200 H. J. Heinz Company 1,584
14,000 Hershey Foods Corporation 682
40,900 Kellogg Company 1,217
56,100 Kimberly-Clark Corporation 3,219
84,200 Kroger Co.* 1,858
3,800 Longs Drug Stores Corporation 83
31,700 Nabisco Group Holdings Corp. 822
147,000 PepsiCo, Inc. 6,532
238,900 Philip Morris Companies Inc. 6,346
134,300 Procter & Gamble Company 7,689
13,500 Quaker Oats Company 1,014
33,300 Ralston - Ralston Purina Company 664
24,000 Rite Aid Corporation* 157
51,400 Safeway Inc.* 2,319
91,700 Sara Lee Corporation 1,771
11,800 Supervalu, Inc. 225
34,200 SYSCO Corporation 1,441
57,700 Unilever N.V. 2,481
14,400 UST Inc. 211
101,600 Walgreen Co. 3,270
12,500 Winn-Dixie Stores, Inc. 179
11,700 Wm. Wrigley Jr. Company 938
-------------
83,357
-------------
ENERGY - 5.4%
8,600 Amerada Hess Corporation 531
12,100 Anadarko Petroleum Corporation 597
11,100 Apache Corporation 653
6,600 Ashland Inc. 231
34,900 Baker Hughes Incorporated 1,117
22,000 Burlington Resources Inc. 842
66,300 Chevron Corporation 5,623
24,400 Coastal Corporation 1,485
63,200 Conoco Inc. - Class B 1,552
</TABLE>
10 See accompanying notes to financial statements
<PAGE> 12
--------------------------------------------------------------------------------
GATEWAY FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value (000's)
------ -------------
ENERGY (CONTINUED)
<S> <C> <C>
357,516 Exxon Mobil Corporation $ 28,065
44,600 Halliburton Company 2,105
8,800 Kerr-McGee Corporation 519
38,000 Occidental Petroleum Corporation 800
25,600 Phillips Petroleum Company 1,298
8,500 Rowan Companies, Inc.* 258
220,200 Royal Dutch Petroleum Company 13,556
58,400 Schlumberger Limited 4,358
8,300 Sunoco, Inc. 244
55,800 Texaco Inc. 2,971
14,500 Tosco Corporation 411
25,980 Transocean Sedco Forex Inc. 1,388
24,500 Union Pacific Resources Group Inc. 539
24,500 Unocal Corporation 812
31,400 USX-Marathon Group 787
-------------
70,742
-------------
FINANCIALS - 12.3%
25,900 AFLAC Incorporated 1,190
81,300 Allstate Corporation 1,809
37,100 AmSouth Bancorporation 584
137,200 American Express Company 7,152
24,900 American General Corporation 1,519
158,287 American International Group, Inc. 18,599
26,300 Aon Corporation 817
73,500 Associates First Capital Corporation - Class A 1,640
115,830 Bank One Corporation 3,077
172,343 Bank of America Corporation 7,411
75,700 Bank of New York Company, Inc. 3,520
35,100 BB&T Corporation 838
11,450 Bear Stearns Companies Inc. 477
19,900 Capital One Financial Corporation 888
139,800 Charles Schwab Corporation 4,701
21,000 Charter One Financial, Inc. 483
127,050 Chase Manhattan Corporation 5,852
17,800 Chubb Corporation 1,095
</TABLE>
See accompanying notes to financial statements 11
<PAGE> 13
--------------------------------------------------------------------------------
GATEWAY FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value (000's)
------ -------------
<S> <C> <C>
FINANCIALS (CONTINUED)
15,200 Cincinnati Financial Corporation $ 478
346,525 Citigroup Inc. 20,878
15,800 Comerica Incorporated 709
24,800 Conseco, Inc. 242
11,400 Countrywide Credit Industries, Inc. 346
103,500 Fannie Mae 5,401
31,200 Fifth Third Bancorp 1,973
99,700 First Union Corporation 2,474
98,991 Firstar Corporation 2,085
92,419 FleetBoston Financial 3,142
25,100 Franklin Resources, Inc. 762
70,200 Freddie Mac 2,843
15,700 Golden West Financial Corporation 641
26,800 Hartford Financial Services Group, Inc. 1,499
47,500 Household International, Inc. 1,974
23,100 Huntington Bancshares Incorporated 365
17,500 J. P. Morgan & Co. Incorporated 1,927
10,600 Jefferson-Pilot Corporation 598
45,200 KeyCorp 797
12,100 Lehman Brothers Holdings Inc. 1,144
19,700 Lincoln National Corporation 712
10,100 Loews Corporation 606
27,700 Marsh & McLennan Companies, Inc. 2,893
9,400 MBIA Inc. 453
80,900 MBNA Corporation 2,194
51,400 Mellon Financial Corporation 1,873
39,800 Merrill Lynch & Co., Inc. 4,577
10,300 MGIC Investment Corporation 469
116,200 Morgan Stanley Dean Witter & Co. 9,674
59,900 National City Corporation 1,022
22,500 Northern Trust Corporation 1,464
12,915 Old Kent Financial Corporation 345
15,000 Paine Webber Group Inc. 682
28,600 PNC Financial Services Group, Inc. 1,341
6,900 Progressive Corporation 511
14,600 Providian Financial Corporation 1,314
</TABLE>
12 See accompanying notes to financial statements
<PAGE> 14
--------------------------------------------------------------------------------
GATEWAY FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value (000's)
------ -------------
<S> <C> <C>
FINANCIALS (CONTINUED)
22,100 Regions Financial Corporation $ 439
11,000 SAFECO Corporation 219
15,100 SLM Holding Corporation 565
16,900 SouthTrust Corporation 382
22,900 St. Paul Companies, Inc. 781
16,200 State Street Corporation 1,718
17,600 Summit Bancorp 433
32,300 SunTrust Banks, Inc. 1,476
26,500 Synovus Financial Corp. 467
11,300 T. Rowe Price Associates, Inc. 480
13,300 Torchmark Corporation 328
76,100 U. S. Bancorp 1,465
14,200 Union Planters Corporation 397
22,800 UnumProvident Corporation 457
19,700 Wachovia Corporation 1,069
58,300 Washington Mutual, Inc. 1,683
166,700 Wells Fargo & Company 6,460
-------------
160,879
-------------
HEALTH CARE - 11.7%
159,100 Abbott Laboratories 7,090
14,400 Aetna Inc. 924
13,300 Allergan, Inc. 991
9,900 ALZA Corporation* 585
133,900 American Home Products Corporation 7,867
105,400 Amgen Inc.* 7,404
4,900 Bausch & Lomb Incorporated 379
29,400 Baxter International Inc. 2,067
25,400 Becton, Dickinson and Company 729
14,300 Biogen, Inc.* 922
10,700 Biomet, Inc. 411
41,900 Boston Scientific Corporation* 919
202,600 Bristol-Myers Squibb Company 11,801
4,700 C. R. Bard, Inc. 226
28,400 Cardinal Health, Inc. 2,102
16,900 CIGNA Corporation 1,580
</TABLE>
See accompanying notes to financial statements 13
<PAGE> 15
--------------------------------------------------------------------------------
GATEWAY FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value (000's)
------ -------------
HEALTH CARE (CONTINUED)
<S> <C> <C>
116,000 Eli Lilly and Company $ 11,586
31,000 Guidant Corporation* 1,535
71,450 HCA-The Healthcare Company 2,170
35,700 HEALTHSOUTH Corporation* 257
15,900 Humana Inc.* 78
142,800 Johnson & Johnson 14,548
8,000 Mallinckrodt Inc. 348
10,400 Manor Care, Inc.* 73
26,700 McKesson HBOC, Inc. 559
20,900 MedImmune, Inc.* 1,547
122,900 Medtronic, Inc. 6,122
236,000 Merck & Co., Inc. 18,083
20,800 PE Corp-PE Biosystems Group 1,370
646,425 Pfizer Inc. 31,028
130,368 Pharmacia Corporation 6,738
9,700 Quintiles Transnational Corp.* 137
150,300 Schering-Plough Corporation 7,590
7,800 St. Jude Medical, Inc.* 358
31,500 Tenet Healthcare Corporation* 850
17,100 UnitedHealth Group Incorporated 1,466
9,700 Watson Pharmaceuticals, Inc.* 521
6,000 Wellpoint Health Networks Inc.* 435
-------------
153,396
-------------
INDUSTRIALS - 9.0%
17,900 Allied Waste Industries, Inc.* 179
19,400 American Power Conversion Corporation* 792
14,000 AMR Corporation* 370
3,900 Armstrong Holdings, Inc. 60
63,600 Automatic Data Processing, Inc. 3,407
11,400 Avery Dennison Corporation 765
11,100 B. F. Goodrich Company 378
93,152 Boeing Company 3,895
2,200 Briggs & Stratton Corporation 75
46,100 Burlington Northern Santa Fe Corporation 1,057
34,500 Caterpillar Inc. 1,169
</TABLE>
14 See accompanying notes to financial statements
<PAGE> 16
-------------------------------------------------------------------------------
GATEWAY FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value (000's)
------ -------------
INDUSTRIALS (CONTINUED)
<S> <C> <C>
71,300 Cendant Corporation* $ 998
15,400 Convergys Corporation* 799
7,900 Cooper Industries, Inc. 257
6,100 Crane Co. 148
20,700 CSX Corporation 439
3,800 Cummins Engine Company, Inc. 104
14,400 Danaher Corporation 712
23,600 Deere & Company 873
15,500 Delta Air Lines, Inc. 784
6,800 Deluxe Corporation 160
20,600 Dover Corporation 836
16,200 Dun & Bradstreet Corporation 464
6,800 Eaton Corporation 456
12,300 Ecolab Inc. 480
43,500 Emerson Electric Co. 2,626
14,300 Equifax Inc. 375
29,300 FedEx Corp.* 1,113
42,300 First Data Corporation 2,099
8,100 Fluor Corporation 256
20,300 General Dynamics Corporation 1,061
1,016,000 General Electric Company 53,848
18,000 Genuine Parts Company 360
9,600 H&R Block, Inc. 311
82,000 Honeywell International Inc. 2,762
30,300 Illinois Tool Works Inc. 1,727
29,200 IMS Health Incorporated 526
16,500 Ingersoll-Rand Company 664
7,400 ITT Industries, Inc. 225
11,200 Kansas City Southern Industries, Inc. 993
40,000 Lockheed Martin Corporation 993
45,100 Masco Corporation 815
6,000 McDermott International, Inc. 53
40,300 Minnesota Mining and Manufacturing Company 3,325
19,775 Molex Incorporated 952
4,000 National Service Industries, Inc. 78
5,800 Navistar International Corporation* 180
</TABLE>
See accompanying notes to financial statements 15
<PAGE> 17
--------------------------------------------------------------------------------
GATEWAY FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value (000's)
------ -------------
INDUSTRIALS (CONTINUED)
<S> <C> <C>
43,500 Norfolk Southern Corporation $ 647
6,800 Northrop Grumman Corporation 451
5,300 Owens Corning 49
6,600 PACCAR Inc. 262
11,500 Pall Corporation 213
10,600 Parker-Hannifin Corporation 363
38,100 Paychex, Inc. 1,600
25,800 Pitney Bowes Inc. 1,032
10,700 R. R. Donnelley & Sons Company 241
38,600 Raytheon Company - Class B 743
20,400 Rockwell International Corporation 643
5,600 Ryder System, Inc. 106
11,949 Sabre Holdings Corporation* 340
50,900 Southwest Airlines Co. 964
15,000 Textron Inc. 815
13,300 Thermo Electron Corporation* 280
5,400 Thomas & Betts Corporation 103
5,900 Timken Company 110
173,384 Tyco International Ltd. 8,214
25,100 Union Pacific Corporation 933
48,000 United Technologies Corporation 2,826
6,600 US Airways Group, Inc.* 257
9,400 W. W. Grainger, Inc. 290
62,600 Waste Management, Inc. 1,189
-------------
117,670
-------------
INFORMATION TECHNOLOGY - 31.7%
36,000 3Com Corporation* 2,075
10,700 Adaptec, Inc.* 243
31,400 ADC Telecommunications, Inc.* 2,634
12,000 Adobe Systems Incorporated 1,560
15,700 Advanced Micro Devices, Inc.* 1,213
46,412 Agilent Technologies, Inc.* 3,423
20,100 Altera Corporation* 2,049
235,900 America Online, Inc.* 12,444
36,300 Analog Devices, Inc.* 2,759
</TABLE>
16 See accompanying notes to financial statements
<PAGE> 18
-------------------------------------------------------------------------------
GATEWAY FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value (000's)
------ -------------
INFORMATION TECHNOLOGY (CONTINUED)
<S> <C> <C>
7,500 Andrew Corporation* $ 252
32,600 Apple Computer, Inc.* 1,707
82,900 Applied Materials, Inc.* 7,513
5,700 Autodesk, Inc. 198
24,700 BMC Software, Inc.* 901
17,700 Cabletron Systems, Inc.* 447
16,000 Ceridian Corporation* 385
714,300 Cisco Systems, Inc.* 45,403
18,100 Citrix Systems, Inc.* 343
174,400 Compaq Computer Corporation 4,458
59,400 Computer Associates International, Inc. 3,041
17,200 Computer Sciences Corporation* 1,285
34,200 Compuware Corporation* 355
15,450 Comverse Technology, Inc.* 1,437
21,700 Conexant Systems, Inc.* 1,055
28,300 Corning Incorporated 7,637
264,400 Dell Computer Corporation* 13,038
47,500 Electronic Data Systems Corporation 1,959
222,850 EMC Corporation* 17,146
32,000 Gateway, Inc.* 1,816
102,700 Hewlett-Packard Company 12,825
343,900 Intel Corporation 45,975
182,000 International Business Machines Corporation 19,940
19,100 KLA-Tencor Corporation* 1,119
12,400 Lexmark International, Inc.* 834
31,400 Linear Technology Corporation 2,008
31,500 LSI Logic Corporation* 1,705
334,440 Lucent Technologies Inc. 19,815
29,000 Maxim Integrated Products, Inc.* 1,970
1,200 Mercury Interactive Corp. 116
57,000 Micron Technology, Inc.* 5,019
540,400 Microsoft Corporation* 43,232
4,200 Millipore Corporation 316
221,011 Motorola, Inc. 6,423
18,000 National Semiconductor Corporation* 1,021
9,400 NCR Corporation* 366
</TABLE>
See accompanying notes to financial statements 17
<PAGE> 19
-------------------------------------------------------------------------------
GATEWAY FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value (000's)
------ -------------
INFORMATION TECHNOLOGY (CONTINUED)
<S> <C> <C>
30,700 Network Appliance, Inc.* $ 2,471
304,200 Nortel Networks Corporation 20,762
30,300 Novell, Inc.* 280
13,100 Novellus Systems, Inc.* 741
316,774 Oracle Corporation* 26,629
27,800 Parametric Technology Corporation* 306
25,500 PeopleSoft, Inc.* 427
5,000 PerkinElmer, Inc. 331
76,100 QUALCOMM Incorporated* 4,566
15,200 Sanmina Corporation* 1,300
5,700 Sapient Corporation* 609
16,000 Scientific-Atlanta, Inc. 1,192
23,300 Seagate Technology, Inc.* 1,281
20,500 Siebel Systems, Inc.* 3,353
59,800 Solectron Corporation* 2,504
162,900 Sun Microsystems, Inc.* 14,814
5,350 Tektronix, Inc. 396
42,100 Tellabs, Inc.* 2,881
17,800 Teradyne, Inc.* 1,308
168,000 Texas Instruments Incorporated 11,539
30,200 Unisys Corporation* 440
40,100 VERITAS Software Corporation* 4,532
67,100 Xerox Corporation 1,392
32,400 Xilinx, Inc.* 2,675
55,800 Yahoo! Inc.* 6,912
-------------
415,101
-------------
MATERIALS - 1.8%
23,100 Air Products and Chemicals, Inc. 712
22,100 Alcan Aluminium Limited 685
86,720 Alcoa Inc. 2,515
10,774 Allegheny Technologies Incorporated 194
2,900 Ball Corporation 93
39,800 Barrick Gold Corporation 724
4,800 Bemis Company, Inc. 161
13,600 Bethlehem Steel Corporation* 49
</TABLE>
18 See accompanying notes to financial statements
<PAGE> 20
--------------------------------------------------------------------------------
GATEWAY FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value (000's)
------ -------------
MATERIALS (CONTINUED)
<S> <C> <C>
6,200 Boise Cascade Corporation $ 160
10,300 Crown Cork & Seal Company, Inc. 155
69,400 Dow Chemical Company 2,095
107,500 E. I. du Pont de Nemours and Company 4,703
7,900 Eastman Chemical Company 377
11,600 Engelhard Corporation 198
2,800 FMC Corporation* 162
13,800 Freeport-McMoRan Copper & Gold, Inc. - Class B* 128
15,800 Georgia-Pacific Group 415
5,300 Great Lakes Chemical Corporation 167
9,800 Hercules Incorporated 138
23,100 Homestake Mining Company 159
19,400 Inco Limited 298
11,800 International Flavors & Fragrances Inc. 356
49,227 International Paper Company 1,468
10,100 Louisiana-Pacific Corporation 110
9,700 Mead Corporation 245
16,900 Newmont Mining Corporation 366
8,500 Nucor Corporation 282
12,700 Owens-Illinois, Inc.* 148
16,300 Pactiv Corporation* 128
7,700 Phelps Dodge Corporation 286
27,400 Placer Dome Inc. 262
2,700 Potlatch Corporation 89
17,500 PPG Industries, Inc. 776
15,100 Praxair, Inc. 565
22,100 Rohm and Haas Company 763
7,900 Sealed Air Corporation* 414
10,200 Sigma-Aldrich Corporation 298
4,700 Temple-Inland Inc. 197
13,500 Union Carbide Corporation 668
8,200 USX-U. S. Steel Group 152
9,500 Vulcan Materials Company 406
7,000 W. R. Grace & Co.* 85
8,500 Westvaco Corporation 211
22,800 Weyerhaeuser Company 980
</TABLE>
See accompanying notes to financial statements 19
<PAGE> 21
--------------------------------------------------------------------------------
GATEWAY FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value (000's)
------ -------------
MATERIALS (CONTINUED)
<S> <C> <C>
10,600 Willamette Industries, Inc. $ 289
8,500 Worthington Industries, Inc. 89
-------------
23,921
-------------
TELECOMMUNICATION SERVICES - 6.7%
31,700 ALLTEL Corporation 1,963
385,360 AT&T Corp. 12,187
158,736 Bell Atlantic Corp. 8,066
193,200 BellSouth Corporation 8,235
13,600 CenturyTel, Inc. 391
90,565 Global Crossing Ltd.* 2,383
98,100 GTE Corporation 6,107
77,900 Nextel Communications, Inc. - Class A* 4,766
349,356 SBC Communications Inc. 15,110
90,000 Sprint Corp. - FON Group 4,590
94,000 Sprint Corp. - PCS Group* 5,593
52,100 U S West, Inc. 4,468
294,000 WorldCom, Inc.* 13,487
-------------
87,346
-------------
UTILITIES - 2.3%
43,800 AES Corporation* 1,998
13,000 Ameren Corporation 439
33,300 American Electric Power Company, Inc. 987
16,000 Cinergy Corp. 407
9,800 CMS Energy Corporation 217
7,700 Columbia Energy Group 505
21,000 Consolidated Edison, Inc. 622
14,500 Constellation Energy Group 472
15,500 CP&L, Inc. 495
29,317 Dominion Resources, Inc. 1,257
14,100 DTE Energy Company 431
36,900 Duke Energy Corporation 2,080
2,500 Eastern Enterprises 158
35,100 Edison International 720
23,100 El Paso Energy Corporation 1,177
</TABLE>
20 See accompanying notes to financial statements
<PAGE> 22
--------------------------------------------------------------------------------
GATEWAY FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value (000's)
------ -------------
UTILITIES (CONTINUED)
<S> <C> <C>
75,200 Enron Corp. $ 4,850
28,300 Entergy Corporation 769
22,100 FirstEnergy Corp. 517
9,500 Florida Progress Corporation 445
18,100 FPL Group, Inc. 896
12,500 GPU, Inc. 338
11,700 New Century Energies, Inc. 351
15,800 Niagara Mohawk Holdings Inc.* 220
4,400 NICOR Inc. 144
15,600 Northern States Power Company 315
3,100 ONEOK, Inc. 80
18,800 PECO Energy Company 758
3,400 Peoples Energy Corporation 110
38,800 PG&E Corporation 956
7,100 Pinnacle West Capital Corporation 241
14,500 PPL Corporation 318
22,100 Public Service Enterprise Group Incorporated 765
29,900 Reliant Energy, Incorporated 884
20,300 Sempra Energy 345
68,000 Southern Company 1,585
27,900 TXU Corporation 823
24,900 Unicom Corporation 963
43,900 Williams Companies, Inc. 1,830
--------------
30,468
--------------
Total Common Stocks (cost $1,021,541) 1,281,065
--------------
</TABLE>
See accompanying notes to financial statements 21
<PAGE> 23
--------------------------------------------------------------------------------
GATEWAY FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Contracts Value (000's)
--------- -------------
<S> <C> <C>
PUT OPTIONS - 0.3%
4,403 On S&P 500 Index expiring July 22, 2000 at 1300 $ 495
4,404 On S&P 500 Index expiring August 19, 2000 at 1325 2,918
--------------
Total Put Options (cost $15,227) 3,413
--------------
REPURCHASE AGREEMENT - 4.1%**
4.25% repurchase agreement with Firstar Bank, N.A.,
dated June 30, 2000, due July 3, 2000
(repurchase proceeds $54,354) 54,335
--------------
Total Common Stocks, Put Options and
Repurchase Agreement - 102.3% 1,338,813
--------------
CALL OPTIONS OUTSTANDING - (2.9%)***
(2,202) On S&P 500 Index expiring July 22, 2000 at 1425 (9,813)
(1,761) On S&P 500 Index expiring July 22, 2000 at 1450 (4,909)
(1,326) On S&P 500 Index expiring July 22, 2000 at 1475 (2,055)
(2,417) On S&P 500 Index expiring August 19, 2000 at 1425 (15,529)
(1,101) On S&P 500 Index expiring August 19, 2000 at 1450 (5,285)
--------------
Total Call Options Outstanding (premiums received (37,591)
--------------
$53,645)
OTHER ASSETS AND LIABILITIES, NET - 0.6% 7,196
--------------
NET ASSETS - 100.0% $1,308,418
==========
</TABLE>
* Non-income producing.
** Repurchase agreement fully collateralized by U. S.
Government Agency obligations.
*** The aggregate value of investments that covers
outstanding call options is $1,281,065.
22 See accompanying notes to financial statements
<PAGE> 24
--------------------------------------------------------------------------------
GATEWAY FUND
Statement of Assets and Liabilities - June 30, 2000 (Unaudited) (000's)
--------------------------------------------------------------------------------
ASSETS:
Common stocks, at value (cost $1,021,541) $ 1,281,065
Put options, at value (cost $15,227) 3,413
Repurchase agreement 54,335
Dividends and interest receivable 997
Receivable for fund shares sold 4,067
Receivable for investments sold 2,970
Other assets 73
-----------
Total assets 1,346,920
-----------
LIABILITIES:
Call options outstanding, at value (premiums received $53,645) 37,591
Payable for fund shares redeemed 319
Payable for investments purchased 113
Other accrued expenses and liabilities 479
-----------
Total liabilities 38,502
-----------
NET ASSETS $ 1,308,418
===========
NET ASSETS CONSIST OF:
Paid-in capital $ 1,078,510
Undistributed net investment income 1,852
Accumulated net realized loss on investment transactions (35,708)
Net unrealized appreciation on investments 263,764
-----------
Net assets $ 1,308,418
-----------
FUND SHARES OUTSTANDING
(unlimited number of shares authorized, no par value) 51,999
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PRICE PER SHARE $ 25.16
===========
See accompanying notes to financial statements 23
<PAGE> 25
-------------------------------------------------------------------------------
GATEWAY FUND
Statement of Operations - For the Six Months
Ended June 30, 2000 (Unaudited) (000's)
-------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 6,133
Interest 1,117
--------
Total investment income 7,250
--------
EXPENSES:
Investment advisory and management fees 3,186
Distribution fees 1,974
Registration fees 134
Custodian fees 36
Professional fees 30
Trustees' fees 16
Insurance expense 11
Other expenses 61
--------
Total expenses 5,448
--------
NET INVESTMENT INCOME 1,802
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
REALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS:
Common stocks 22,844
Call options expired and closed 28,023
Put options expired and closed (24,812)
--------
Net realized gain on investment transactions 26,055
--------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON INVESTMENTS:
Common stocks (6,808)
Call options 54,306
Put options (5,585)
--------
Net change in unrealized appreciation/depreciation on investments 41,913
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 67,968
--------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 69,770
========
24 See accompanying notes to financial statements
<PAGE> 26
--------------------------------------------------------------------------------
GATEWAY FUND
Statements of Changes in Net Assets (000's)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 2000 Year Ended
(Unaudited) December 31, 1999
------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 1,802 $ 2,458
Net realized gain (loss) on investment transactions 26,055 (35,500)
Net change in unrealized appreciation/depreciation on investments 41,913 113,395
----------- -----------
Net increase in net assets from operations 69,770 80,353
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- (2,439)
----------- -----------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 565,353 636,834
Net asset value of shares issued in reinvestment of
distributions to shareholders -- 2,147
Payments for shares redeemed (248,833) (258,967)
----------- -----------
Net increase in net assets from fund shares transactions 316,520 380,014
----------- -----------
NET INCREASE IN NET ASSETS 386,290 457,928
NET ASSETS:
Beginning of period 922,128 464,200
----------- -----------
End of period $ 1,308,418 $ 922,128
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME $ 1,852 $ 50
=========== ===========
FUND SHARE TRANSACTIONS:
Shares sold 23,371 28,353
Shares issued in reinvestment of distributions to shareholders -- 94
Shares redeemed (10,324) (11,581)
----------- -----------
Net increase in fund shares outstanding 13,047 16,866
Shares outstanding, beginning of period 38,952 22,086
----------- -----------
Shares outstanding, end of period 51,999 38,952
=========== ===========
</TABLE>
See accompanying notes to financial statements 25
<PAGE> 27
--------------------------------------------------------------------------------
GATEWAY FUND
Financial Highlights - Per Share Data for a Share Outstanding Throughout Each
Period
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
2000 Year Ended December 31,
(Unaudited) 1999 1998 1997 1996 1995 (1)
----------- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
BEGINNING NET ASSET VALUE $23.67 $21.02 $18.85 $18.48 $16.91 $15.48
--------- --------- --------- --------- --------- --------
INVESTMENT OPERATIONS:
Net investment income 0.03 0.07 0.12 0.18 0.21 0.24
Net gain on investments 1.46 2.65 2.18 2.09 1.56 1.46
--------- --------- --------- --------- --------- --------
Total from investment operations 1.49 2.72 2.30 2.27 1.77 1.70
--------- --------- --------- --------- --------- --------
DISTRIBUTIONS:
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)
--------- --------- --------- --------- --------- --------
ENDING NET ASSET VALUE $25.16 $23.67 $21.02 $18.85 $18.48 $16.91
========= ========= --======= ========= ========= ========
TOTAL RETURN 6.30%(2) 12.97% 12.26% 12.35% 10.53% 11.04%
ENDING NET ASSETS (000's) $1,308,418 $922,128 $464,200 $255,458 $194,363 $176,220
AVERAGE NET ASSETS RATIOS:
Net expenses 0.98%(3) 0.98% 0.99% 1.07% 1.14% 1.19%
Net investment income 0.32%(3) 0.37% 0.66% 0.90% 1.18% 1.51%
PORTFOLIO TURNOVER RATE 13%(2) 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.
(2) Not annualized.
(3) Annualized.
26 See accompanying notes to financial statements
<PAGE> 28
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Gateway Trust (the Trust) is a family of three diversified mutual funds. The
financial statements of the Gateway Fund (the Fund) are included in this report.
The investment objective of the Fund is to capture the majority of the higher
returns associated with equity market investments, while exposing investors to
significantly less risk than other equity investments. The Fund attempts to
achieve its investment objective primarily by investing in the 500 common stocks
included in the S&P 500 Index and by selling call options on its indexed
portfolio. The Fund also buys index put options that can protect the Fund from a
significant market decline over a short period of time. The financial statements
of the Gateway Small Cap Index Fund and the Cincinnati Fund(R) 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 market value
and option contracts (both purchased and written) at the average of the closing
bid and asked quotations. Prior to May 1, 2000, the Fund normally valued common
stocks at the average of the closing bid and asked quotations. Securities for
which market quotations are not readily available and securities in which
trading has been suspended during the day are valued at fair value as determined
in good faith under procedures adopted by the Board of Trustees.
SHARE VALUATION -- The net asset value per share of the Fund is calculated daily
by dividing the total value of the Fund's assets, less liabilities, by the
number of shares outstanding. The offering price and redemption price per share
is equal to the net asset value per share.
INVESTMENT TRANSACTIONS, INVESTMENT INCOME AND EXPENSES -- Investment
transactions are recorded on the trade date. Capital gains and losses are
calculated on an identified cost basis. Dividend income is recorded on the
ex-dividend date and interest income is accrued daily. Expenses that cannot be
directly associated with a specific Trust fund are allocated under policies
approved by the Board of Trustees.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income and
net realized capital gains, if any, 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
share-holders. Based on this policy, the Fund makes no provision for income
taxes.
At June 30, 2000, the cost of common stock for federal income tax purposes was
$1,021,707,000; gross unrealized appreciation totaled $329,514,000 and gross
unrealized depreciation totaled $70,156,000. The difference between the federal
income tax cost of common stock and the acquisition cost is due to certain
timing differences in the recognition of capital losses under income tax
regulations and generally accepted accounting principles. At December 31, 1999,
the Fund had a net capital loss carryforward of $106,037,000, of which
$43,225,000 expires on December 31, 2006 and $62,812,000 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).
27
<PAGE> 29
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
2. TRANSACTIONS WITH AFFILIATES
The Fund has 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. The Fund also pays the Adviser an investment advisory and management fee
under the terms of a Management Agreement at an annual rate of 0.925% of the
Fund's average daily net assets 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 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 Fund's
average daily net assets, the Adviser has agreed to reduce its fee as necessary
to limit the Fund's expenses to that level.
3. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2000, cost of purchases of investment
securities (excluding short-term investments) totaled $484,769,000 and proceeds
from sales totaled $146,452,000.
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 six months ended June 30, 2000, transactions in written
options were as follows:
Premiums
Contracts (000's)
--------- -------
Outstanding at December 31, 1999 6,853 $ 48,014
Options written 34,549 183,144
Options exercised (32,595) (177,513)
-------- ---------
Outstanding at June 30, 2000 8,807 $ 53,645
======== =========
4. BANK LINE OF CREDIT
The Fund has an uncommitted $37.5 million 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 0.50%. There are no fees associated with maintaining this facility.
For the six months ended June 30, 2000, there were no borrowings on this line of
credit.
28
<PAGE> 30
--------------------------------------------------------------------------------
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
29
<PAGE> 31
--------------------------------------------------------------------------------
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> 32
GATEWAY
SMALL CAP INDEX FUND
FUND
Semi-Annual Report
June 30, 2000
(Unaudited)
THE GATEWAY TRUST
P. O. BOX 5211
CINCINNATI, OH 45201-5211
(800) 354-6339
<PAGE> 33
--------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Highlights at June 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
----------------------------------------
Past One Three Five Since Inception Price
Quarter Year Years Years on 6/16/93 Per Share
------- ---- ----- ----- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
GATEWAY SMALL CAP
INDEX FUND 0.70% 21.74% 13.22% 15.05% 12.33% $14.42
Wilshire Small Cap Index 1.92 25.72 17.61 19.56
Russell 2000 Index (3.78) 14.32 10.57 14.27
</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 0.70% 21.74% 45.14% 101.57% 126.75%
Wilshire Small Cap Index 1.92 25.72 62.73 144.52
Russell 2000 Index (3.78) 14.32 35.20 94.84
</TABLE>
Data sources throughout this report: Gateway Investment Advisers, L.P.,
TowersData and Bloomberg
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> 34
--------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Letter from the Chairman
--------------------------------------------------------------------------------
Dear Shareholder:
The rally in small capitalization stocks that began last year continued in the
first half of 2000. Despite increasing volatility, these formerly forgotten
stocks moved counter to the downward trend prevailing for large capitalization
stocks and posted gains for the six months. Portfolio Manager Patrick Rogers
maintained a fully invested position in order to take advantage of the abundant
values offered in this sector.
Primarily through market appreciation, the Fund's total assets continued to grow
in the first half of 2000.
The Gateway Small Cap Index Fund continued to match faithfully the Wilshire
Small Cap Index. This index represents a representative cross section of the
small capitalization sector of the market. As this sector was deemed attractive
at year-end and into 2000, risk-management strategies were not deployed in the
first half.
As we move into the second half of 2000, prospects remain bright for the small
cap sector of the market. The economy is strong, inflation is low and smaller
companies are well-poised to exploit these opportunities. Your Fund will be
there to participate.
Cordially,
/s/ Walter G. Sall
Walter G. Sall
Chairman
2
<PAGE> 35
--------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio Manager's Report
--------------------------------------------------------------------------------
Despite the volatility surrounding the equity markets during the first half of
2000, the Gateway Small Cap Index Fund produced positive returns for the first
two quarters of the year.
--------------------------------------------------------------------
GATEWAY
SMALL CAP INDEX RUSSELL 2000
FUND INDEX
--------------------------------------------------------------------
First Quarter 4.83% 7.08%
--------------------------------------------------------------------
Second Quarter 0.70% (3.78%)
--------------------------------------------------------------------
For the six and twelve months ended June 30, 2000, the Gateway Small Cap Index
Fund produced total returns of 5.56% and 21.74%, respectively. This compares
favorably to the 3.04% and 14.32% returns produced by the Russell 2000 Index
over the same periods.
The Gateway Small Cap Index Fund invests in the 250 stocks represented in the
Wilshire Small Cap Index. The weighted average market capitalization for the
portfolio is $3.5 billion. The largest industry sector is Information Technology
at 31.7%.
3
<PAGE> 36
--------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio Manager's Report
--------------------------------------------------------------------------------
-------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
TOP TEN HOLDINGS
-------------------------------------------------------------------------
AS A PERCENTAGE OF
STOCKS NET ASSETS
-------------------------------------------------------------------------
Palm, Inc. 6.4%
Internet Capital Group, Inc. 3.6
Akamai Technologies, Inc. 3.2
Liberty Digital, Inc. 2.5
Intersil Holding Corporation 1.4
Polycom, Inc. 1.2
Avanex Corporation 1.2
RSA Security Inc. 1.0
Digital Microwave Corporation 0.9
ADC Telecommunications, Inc. 0.9
-------------------------------------------------------------------------
We certainly appreciate your trust and confidence in us. We look forward to
continued success.
/s/ J. Patrick Rogers
J. Patrick Rogers, CFA
Portfolio Manager
4
<PAGE> 37
--------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio Manager's Report
--------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
June 16, 1993 (inception date) - June 30, 2000
PLOT POINTS FOR CHART
GATEWAY SMALL CAP RUSSELL 2000
INDEX FUND INDEX
$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 $11,222.82
$10,449.94 $10,853.59
$10,649.96 $11,224.79
$10,927.81 $11,577.24
$10,866.62 $11,535.57
$10,362.41 $10,926.49
$10,310.90 $10,990.95
$10,156.55 $10,867.86
$9,807.17 $10,498.35
$9,982.12 $10,670.52
$10,517.27 $11,264.87
$10,249.71 $11,227.70
$10,332.01 $11,183.91
$9,879.22 $10,732.08
$10,012.99 $11,020.77
$9,857.02 $10,881.91
$10,272.93 $11,334.60
$10,428.90 $11,529.55
$10,647.25 $11,785.51
$10,886.38 $11,988.22
$11,250.32 $12,610.41
$11,863.78 $13,336.77
$12,102.93 $13,612.84
$12,113.32 $13,856.51
$11,624.64 $13,237.12
$11,988.49 $13,793.08
$12,195.89 $14,157.22
$12,173.81 $14,141.64
$12,471.83 $14,582.86
$12,847.11 $14,880.35
$13,476.23 $15,676.45
$13,862.59 $16,294.10
$13,255.69 $15,624.42
$12,317.58 $14,260.41
$13,001.95 $15,088.94
$13,520.73 $15,678.91
$13,443.52 $15,437.46
$14,094.73 $16,073.48
$14,274.58 $16,494.61
$14,641.43 $16,824.50
$14,594.14 $16,417.34
$14,014.17 $15,642.45
$14,203.50 $15,686.25
$15,197.75 $17,430.56
$15,623.89 $18,178.33
$16,736.47 $19,023.62
$17,138.14 $19,459.26
$17,978.43 $20,883.68
$17,232.86 $19,966.88
$17,114.47 $19,837.10
$17,220.41 $20,184.25
$17,105.38 $19,865.34
$18,561.73 $21,333.39
$19,353.76 $22,212.32
$19,698.64 $22,334.49
$18,523.42 $21,130.66
$18,191.30 $21,175.03
$16,786.93 $19,459.86
$13,350.31 $15,680.75
$14,206.20 $16,908.56
$15,010.98 $17,598.42
$15,854.14 $18,520.58
$16,636.07 $19,667.01
$17,314.16 $19,928.58
$16,044.51 $18,314.36
$16,289.83 $18,600.07
$17,718.28 $20,266.63
$17,819.28 $20,562.52
$18,627.21 $21,491.95
$18,122.22 $20,903.07
$17,617.16 $20,129.66
$17,703.66 $20,133.68
$18,352.85 $20,214.22
$19,391.62 $21,421.01
$21,481.26 $23,845.87
$20,381.42 $23,461.95
$23,935.94 $27,335.51
$22,521.33 $25,534.10
$22,158.73 $23,996.95
$21,041.93 $22,597.93
$22,676.89 $24,568.47
-----------------------------------------------
GATEWAY SMALL CAP INDEX FUND
AVERAGE ANNUAL TOTAL RETURNS
AS OF JUNE 30, 2000
-----------------------------------------------
One Year 21.74%
-----------------------------------------------
Five Years 15.05%
-----------------------------------------------
Life of Fund 12.33%
-----------------------------------------------
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> 38
--------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
COMMON STOCKS - 98.4%
CONSUMER DISCRETIONARY - 16.1%
2,000 Ames Department Stores, Inc.* $ 15,500
1,900 Applebee's International, Inc. 57,594
1,800 Arvin Industries, Inc. 31,275
3,100 Aztar Corporation* 48,050
2,300 Be Free, Inc.* 20,700
2,800 Bob Evans Farms, Inc. 41,825
5,300 Callaway Golf Company 86,456
2,200 CDnow, Inc.* 6,806
7,000 Charming Shoppes, Inc.* 35,656
2,252 Chris-Craft Industries, Inc.* 148,773
1,400 Dress Barn, Inc.* 30,975
6,600 Extended Stay America, Inc.* 61,050
2,200 Fossil, Inc.* 42,763
8,100 Hollinger International Inc. - Class A 110,362
8,200 HomeGrocer.com* 49,456
2,100 Houghton Mifflin Company 98,044
1,800 Insight Enterprises, Inc.* 106,763
18,400 Internet Capital Group, Inc.* 681,087
3,300 Kaufman and Broad Home Corporation 65,381
1,900 Kellwood Company 40,138
4,300 La-Z-Boy Incorporated 60,200
2,100 Lands' End, Inc.* 70,088
3,700 Lennar Corporation 74,925
2,400 Lone Star Steakhouse & Saloon, Inc. 24,300
4,150 Mohawk Industries, Inc.* 90,262
2,500 Nautica Enterprises, Inc.* 26,719
2,100 Papa John's International, Inc.* 51,450
7,700 PETsMART, Inc.* 25,987
3,000 Pulte Corporation 64,875
1,900 PurchasePro.com, Inc.* 77,900
4,400 Ruby Tuesday, Inc. 55,275
1,400 Russ Berrie and Company, Inc. 26,950
1,100 Scholastic Corporation* 67,238
4,400 StarMedia Network, Inc.* 83,050
2,900 Station Casinos, Inc.* 72,500
</TABLE>
6 See accompanying notes to financial statements
<PAGE> 39
--------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
CONSUMER DISCRETIONARY (CONTINUED)
3,300 Stride Rite Corporation $ 20,213
3,300 Sunglass Hut International, Inc.* 27,122
1,800 Superior Industries International, Inc. 46,350
9,400 Venator Group, Inc.* 96,350
1,000 West Pharmaceutical Services, Inc. 21,625
3,700 WestPoint Stevens Inc. 41,162
1,500 WorldGate Communications, Inc.* 26,625
11,700 Ziff-Davis Inc.* 105,300
--------------
3,035,120
--------------
CONSUMER STAPLES - 2.8%
1,607 Block Drug Company, Inc. - Class A 67,996
1,900 Dreyer's Grand Ice Cream, Inc. 39,900
3,000 Earthgrains Company 58,313
2,800 Fleming Companies, Inc. 36,575
4,700 NBTY, Inc.* 29,962
5,200 Perrigo Company* 32,825
4,200 Playtex Products, Inc.* 47,512
2,100 Ralcorp Holdings, Inc.* 25,725
4,500 Rexall Sundown, Inc.* 108,000
1,800 Whole Foods Market, Inc.* 74,363
--------------
521,171
--------------
ENERGY - 3.1%
2,200 Barrett Resources Corporation* 66,963
3,900 Marine Drilling Companies, Inc.* 109,200
4,900 Newpark Resources, Inc.* 46,244
5,500 Parker Drilling Company* 34,031
2,800 Pogo Producing Company 61,950
4,200 Pride International, Inc.* 103,950
2,300 Tesoro Petroleum Corporation* 23,287
5,906 Varco International, Inc.* 137,314
--------------
582,939
--------------
</TABLE>
See accompanying notes to financial statements 7
<PAGE> 40
--------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
FINANCIALS - 9.8%
6,100 21st Century Insurance Group $ 96,075
1,800 Advanta Corp. - Class A 21,938
4,400 Allied Capital Corporation 74,800
5,000 AmeriCredit Corp.* 85,000
2,200 Bank United Corp. - Class A 77,413
7,300 Catellus Development Corporation* 109,500
3,100 City National Corporation 110,050
3,500 Community First Bankshares, Inc. 57,094
3,000 Doral Financial Corporation 34,312
2,700 Enhance Financial Services Group Inc. 38,812
4,600 First American Corporation 65,837
5,000 Fremont General Corporation 19,687
4,700 Independence Community Bank Corp. 62,275
3,400 Keystone Financial, Inc. 72,250
1,300 Liberty Corporation 54,600
1,200 National Discount Brokers Group, Inc.* 38,250
1,600 Nationwide Financial Services, Inc. - Class A 52,600
2,100 NetBank, Inc.* 26,119
1,853 Provident Bankshares Corporation 25,016
2,500 Radian Group Inc. 129,375
3,200 Raymond James Financial, Inc. 72,000
8,200 Reliance Group Holdings, Inc.* 6,150
2,000 Riggs National Corporation 25,250
5,400 Roslyn Bancorp, Inc. 89,691
3,000 Silicon Valley Bancshares* 127,875
4,331 Valley National Bancorp 105,297
3,853 Washington Federal, Inc. 70,317
2,600 Westamerica Bancorporation 67,925
2,000 Zenith National Insurance Corp. 42,500
---------------
1,858,008
---------------
</TABLE>
8 See accompanying notes to financial statements
<PAGE> 41
--------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
HEALTH CARE - 9.3%
2,100 Aclara Biosciences Inc.* $ 106,969
1,900 Acuson Corporation* 25,650
3,200 Alliance Pharmaceutical Corp.* 36,000
1,100 Aviron* 33,963
2,000 Beckman Coulter, Inc. 116,750
3,600 Bio-Technology General Corp.* 47,475
2,500 Cell Genesys, Inc.* 70,000
2,200 Cephalon, Inc.* 131,725
4,200 Coventry Health Care, Inc.* 55,978
4,900 CYTOGEN Corporation* 49,612
3,600 DENTSPLY International Inc. 110,925
900 Diagnostic Products Corporation 28,800
3,000 Dura Pharmaceuticals, Inc.* 43,125
4,000 Edwards Lifesciences Corporation* 76,500
2,500 Enzon, Inc.* 106,250
1,600 Gene Logic Inc.* 57,100
1,300 Geron Corporation* 41,600
1,800 Haemonetics Corporation* 37,800
2,500 IDEXX Laboratories, Inc.* 57,188
3,300 Immunomedics, Inc.* 80,850
3,400 Mid Atlantic Medical Services, Inc.* 45,900
1,800 Neoforma.com, Inc.* 12,656
900 NeoRx Corporation* 16,988
5,700 Oxford Health Plans, Inc.* 135,731
3,100 PSS World Medical, Inc.* 20,828
3,300 Summit Technology, Inc.* 62,287
5,800 Total Renal Care Holdings, Inc.* 34,800
4,100 VISX, Incorporated* 115,056
--------------
1,758,506
--------------
</TABLE>
See accompanying notes to financial statements 9
<PAGE> 42
--------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
INDUSTRIALS - 16.0%
3,400 Airborne Freight Corporation $ 64,387
5,100 Akamai Technologies, Inc.* 605,545
1,800 Alaska Air Group, Inc.* 48,825
2,109 Albany International Corp. - Class A* 30,581
2,500 AptarGroup, Inc. 67,500
1,800 Arnold Industries, Inc. 21,713
2,500 Baldor Electric Company 46,562
1,900 Banta Corporation 35,981
2,100 Carlisle Companies Incorporated 94,500
700 Chemed Corporation 19,731
1,700 CLARCOR Inc. 33,788
2,200 CMP Group, Inc. 64,488
1,400 Digital River, Inc.* 10,763
3,100 Donaldson Company, Inc. 61,225
2,600 Dycom Industries, Inc.* 119,600
3,000 GenCorp Inc. 24,000
4,200 Hon Industries, Inc. 98,700
2,500 J. B. Hunt Transport Services, Inc.* 38,594
2,100 Kennametal Inc. 45,019
2,800 Kimball International, Inc. - Class B 41,300
2,500 MedQuist Inc.* 85,000
5,100 MicroStrategy Incorporated* 153,000
2,600 Milacron Inc. 37,700
600 NACCO Industries, Inc. - Class A 21,075
2,300 New Era of Networks, Incorporated* 97,750
2,300 Newport News Shipbuilding Inc. 84,525
2,300 Overseas Shipholding Group, Inc. 56,638
3,300 Pentair, Inc. 117,150
3,600 Pittston Company 49,275
3,300 Profit Recovery Group International, Inc.* 54,862
3,500 Proxicom, Inc.* 167,562
2,100 Rollins, Inc. 31,237
4,100 Rollins Truck Leasing Corp. 28,444
6,300 SAVVIS Communications Corporation* 82,294
2,000 Standard Register Company 28,500
2,600 Teleflex Incorporated 96,362
</TABLE>
10 See accompanying notes to financial statements
<PAGE> 43
--------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
INDUSTRIALS (CONTINUED)
1,200 Vertel Corporation* $ 21,000
3,000 Wallace Computer Services, Inc. 29,625
3,100 Wind River Systems, Inc.* 117,412
1,700 Yellow Corporation* 25,075
2,700 York International Corporation 70,538
---------------
3,027,826
---------------
INFORMATION TECHNOLOGY - 31.7%
2,107 ADC Telecommunications, Inc.* 176,725
3,700 Advanced Digital Information Corporation* 58,969
2,800 American Management Systems, Incorporated* 91,919
2,000 Ancor Communications, Incorporated* 71,531
2,500 ANTEC Corporation* 103,906
3,300 Aspect Communications Corporation* 129,731
2,300 Avanex Corporation* 219,650
1,600 Avid Technology, Inc.* 19,200
700 Bottomline Technologies, Inc.* 23,931
3,700 Brightpoint, Inc.* 32,028
2,800 Broadbase Software, Inc.* 85,750
4,200 Cambridge Technology Partners, Inc.* 36,619
2,300 Cerner Corporation* 62,675
4,500 Cirrus Logic, Inc.* 72,000
1,000 Com21, Inc.* 25,000
3,600 Concurrent Computer Corporation* 47,250
3,000 Credence Systems Corporation* 165,562
2,000 Cymer, Inc.* 95,500
4,700 Digital Microwave Corporation* 179,187
1,600 F5 Networks, Inc.* 87,300
2,600 General Semiconductor, Inc.* 38,350
1,500 Gerber Scientific, Inc. 17,250
4,300 Glenayre Technologies, Inc.* 45,419
2,200 Globix Corporation* 64,488
2,300 Harmonic Inc.* 56,925
1,700 Hutchinson Technology Incorporated* 24,225
2,130 Hyperion Solutions Corporation* 69,092
1,700 Integrated Silicon Solution, Inc.* 64,600
</TABLE>
See accompanying notes to financial statements 11
<PAGE> 44
--------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
INFORMATION TECHNOLOGY (CONTINUED)
4,900 Intersil Holding Corporation* $ 264,906
1,100 Intraware, Inc.* 17,669
19,100 Iomega Corporation* 76,400
1,600 Kulicke and Soffa Industries, Inc.* 95,000
8,100 Maxtor Corporation* 85,556
4,500 Mentor Graphics Corporation* 89,437
6,600 Micron Electronics, Inc.* 82,500
1,000 Net Perceptions, Inc.* 15,875
6,200 NetZero, Inc.* 32,356
4,100 Oak Technology, Inc.* 88,406
3,000 Open Market, Inc.* 41,437
3,200 P-Com, Inc.* 18,200
36,300 Palm, Inc.* 1,211,512
2,200 Paradyne Networks, Inc.* 71,638
2,400 Polycom, Inc.* 225,825
2,000 Power Integrations, Inc.* 47,125
2,100 Puma Technology, Inc.* 56,306
2,000 Remedy Corporation* 111,500
2,600 RSA Security Inc.* 180,050
6,200 S3 Incorporated* 91,450
1,800 Shared Medical Systems Corporation 131,288
2,300 Silicon Valley Group, Inc.* 59,513
2,000 SpeedFam-IPEC, Inc.* 36,375
1,400 Spyglass, Inc.* 43,838
2,524 Structural Dynamics Research Corporation* 38,018
5,600 Sybase Incorporated* 128,800
2,900 Sykes Enterprises, Incorporated* 37,338
2,300 Transaction Systems Architects, Inc. - Class A* 39,388
2,300 Valence Technology, Inc.* 42,406
2,100 Verity, Inc.* 79,800
5,800 Viasystems Group, Inc.* 93,887
2,900 Wave Systems Corp. - Class A* 45,856
9,100 Western Digital Corporation* 45,500
1,900 Xircom, Inc.* 90,250
---------------
5,980,187
---------------
</TABLE>
12 See accompanying notes to financial statements
<PAGE> 45
--------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
MATERIALS - 2.6%
5,000 Airgas, Inc.* $ 28,437
7,200 AK Steel Holding Corporation 57,600
1,100 Brush Engineered Materials Inc. 17,188
1,500 Carpenter Technology Corporation 31,688
1,200 Chesapeake Corporation 35,550
3,800 Gaylord Container Corporation - Class A* 10,212
2,100 Georgia Gulf Corporation 43,706
1,000 H. B. Fuller Company 45,563
2,600 Stillwater Mining Company* 72,475
2,700 Ventro Corporation* 50,963
5,000 W. R. Grace & Co.* 60,625
3,663 Wausau-Mosinee Paper Corporation 31,364
---------------
485,371
---------------
TELECOMMUNICATION SERVICES - 4.2%
2,500 IDT Corporation* 84,844
3,400 Intermedia Communications Inc.* 101,150
15,900 Liberty Digital, Inc.* 477,000
4,500 TALK.com, Inc.* 26,156
3,400 Viatel, Inc.* 97,113
---------------
786,263
---------------
UTILITIES - 2.8%
1,200 CH Energy Group, Inc. 40,725
3,775 MDU Resources Group, Inc. 81,634
5,000 Minnesota Power, Inc. 86,562
1,800 Northwest Natural Gas Company 40,275
2,200 ONEOK, Inc. 57,063
2,900 Public Service Company of New Mexico 44,769
2,100 Southwest Gas Corporation 36,750
2,200 UGI Corporation 45,100
2,280 UniSource Energy Corporation 34,200
4,600 Western Resources, Inc. 71,300
---------------
538,378
---------------
Total Common Stocks (cost $17,836,897) 18,573,769
</TABLE>
See accompanying notes to financial statements 13
<PAGE> 46
--------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Portfolio of Investments - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
-----
<S> <C>
REPURCHASE AGREEMENT - 6.7% **
4.25% repurchase agreement with Firstar Bank, N.A.,
dated June 30, 2000, due July 3, 2000
(repurchase proceeds $1,263,447) $ 1,263,000
------------
Total Common Stocks and Repurchase Agreement - 105.1% 19,836,769
LIABILITIES IN EXCESS OF OTHER ASSETS - (5.1%) (967,728)
------------
NET ASSETS - 100.0% $18,869,041
===========
</TABLE>
* Non-income producing.
** Repurchase agreement fully collateralized by U. S.
Government Agency obligations.
14 See accompanying notes to financial statements
<PAGE> 47
--------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Statement of Assets and Liabilities - June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
ASSETS:
Common stocks, at value (cost $17,836,897) $ 18,573,769
Repurchase agreement 1,263,000
Cash 914
Dividends and interest receivable 9,161
Receivable for fund shares sold 556
Receivable for investments sold 40,483
Other assets 11,092
------------
Total assets 19,898,975
------------
LIABILITIES:
Payable for investments purchased 1,017,211
Other accrued expenses and liabilities 12,723
------------
Total liabilities 1,029,934
------------
NET ASSETS $ 18,869,041
============
NET ASSETS CONSIST OF:
Paid-in capital $ 15,087,148
Accumulated net investment loss (48,838)
Accumulated realized gain on investment transactions 3,093,859
Net unrealized appreciation on investments 736,872
------------
Net assets $ 18,869,041
============
FUND SHARES OUTSTANDING
(unlimited number of shares authorized, no par value) 1,308,679
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PRICE PER SHARE $ 14.42
============
See accompanying notes to financial statements 15
<PAGE> 48
-------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Statement of Operations - For the Six Months Ended June 30, 2000 (Unaudited)
-------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 81,506
Interest 10,219
-----------
Total investment income 91,725
-----------
EXPENSES:
Investment advisory and management fees 84,338
Transfer agent and accounting fees 42,676
Custodian fees 11,980
Reports to shareholders 7,784
Registration fees 7,403
Professional fees 6,149
Trustees' fees 3,610
Insurance expense 1,102
Other expenses 1,886
-----------
Total expenses 166,928
Fees waived (26,365)
-----------
Net expenses 140,563
-----------
NET INVESTMENT LOSS (48,838)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions 3,167,929
Net decrease in unrealized appreciation on investments (2,152,034)
-----------
Net realized and unrealized gain on investments 1,015,895
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 967,057
===========
16 See accompanying notes to financial statements
<PAGE> 49
--------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 2000 Year Ended
(Unaudited) December 31, 1999
----------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment loss $ (48,838) $ (61,551)
Net realized gain on investment transactions 3,167,929 1,521,971
Net increase (decrease) in unrealized appreciation on investments (2,152,034) 2,372,500
------------ ------------
Net increase in net assets from operations 967,057 3,832,920
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gain on investment transactions -- (1,485,231)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 7,891,419 13,401,113
Net asset value of shares issued in reinvestment of
distributions to shareholders -- 1,418,124
Payments for shares redeemed (8,036,564) (13,247,375)
------------ ------------
Net increase (decrease) in net assets from fund shares
transactions (145,145) 1,571,862
------------ ------------
NET INCREASE IN NET ASSETS 821,912 3,919,551
NET ASSETS:
Beginning of period 18,047,129 14,127,578
------------ ------------
End of period $ 18,869,041 $ 18,047,129
============ ============
FUND SHARE TRANSACTIONS:
Shares sold 563,667 1,048,860
Shares issued in reinvestment of distributions to shareholders -- 105,124
Shares redeemed (576,045) (1,057,918)
------------ ------------
Net increase (decrease) in fund shares outstanding (12,378) 96,066
Shares outstanding, beginning of period 1,321,057 1,224,991
------------ ------------
Shares outstanding, end of period 1,308,679 1,321,057
============ ============
</TABLE>
See accompanying notes to financial statements 17
<PAGE> 50
--------------------------------------------------------------------------------
GATEWAY SMALL CAP INDEX FUND
Financial Highlights - Per Share Data for a Share Outstanding Throughout Each
Period
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended December 31,
2000
(Unaudited) 1999 1998 1997 1996 1995 (1)
----------- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
BEGINNING NET ASSET VALUE $ 13.66 $ 11.53 $ 13.48 $ 12.06 $ 11.05 $ 9.63
INVESTMENT OPERATIONS:
Net investment income (loss) (0.04) (0.05) (0.05) (0.02) 0.01 0.03
Net gain (loss) on investments 0.80 3.39 (0.41) 2.51 1.87 2.07
---------- ---------- --------- ---------- ---------- --------
Total from investment operations 0.76 3.34 (0.46) 2.49 1.88 2.10
---------- ---------- --------- ---------- ---------- --------
DISTRIBUTIONS:
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)
---------- ---------- --------- ---------- ---------- --------
ENDING NET ASSET VALUE $ 14.42 $ 13.66 $ 11.53 $ 13.48 $ 12.06 $11.05
======= ======== ======== ======== ======== ======
TOTAL RETURN 5.56%(2) 29.13% (3.40%) 20.64% 17.04% 21.81%
ENDING NET ASSETS (000's) $18,869 $18,047 $14,128 $15,811 $10,921 $ 9,418
AVERAGE NET ASSETS RATIOS:
Net expenses 1.50%(3) 1.47% 1.50% 1.50% 1.50% 1.68%
Net investment income (loss) (0.52%)(3) (0.43%) (0.42%) (0.19%) 0.03% 0.09%
PORTFOLIO TURNOVER RATE 45%(2) 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) Not annualized.
(3) Annualized.
18 See accompanying notes to financial statements
<PAGE> 51
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Gateway Trust (the Trust) is a family of three diversified mutual funds. The
financial statements of the Gateway Small Cap Index Fund (the Fund) are included
in this report. The primary investment objective of the Fund is long-term growth
of capital. The Fund attempts to achieve its investment objective primarily by
investing in the 250 stocks included in the Wilshire Small Cap Index and, at
times, by purchasing put or call options on an index. The financial statements
of the Gateway Fund and the Cincinnati Fund(R) 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 market value
and option contracts at the average of the closing bid and asked quotations.
Prior to May 1, 2000, the Fund normally valued common stocks at the average of
the closing bid and asked quotations. Securities for which market quotations are
not readily available and securities in which trading has been suspended during
the day are valued at fair value as determined in good faith under procedures
adopted by the Board of Trustees.
SHARE VALUATION -- The net asset value per share of the Fund is calculated daily
by dividing the total value of the Fund's assets, less liabilities, by the
number of shares outstanding. The offering price and redemption price per share
is equal to the net asset value per share.
INVESTMENT TRANSACTIONS, INVESTMENT INCOME AND EXPENSES -- Investment
transactions are recorded on the trade date. Capital gains and losses are
calculated on an identified cost basis. Dividend income is recorded on the
ex-dividend date and interest income is accrued daily. Expenses that cannot be
directly associated with a specific Trust fund are allocated under policies
approved by the Board of Trustees.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income and
net realized capital gains, if any, 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
share-holders. Based on this policy, the Fund makes no provision for income
taxes.
At June 30, 2000, the cost of common stock for federal income tax purposes was
$17,893,132; gross unrealized appreciation totaled $2,851,847 and gross
unrealized depreciation totaled $2,171,210. The difference between the federal
income tax cost of common stock and the acquisition cost is due to certain
timing differences in the recognition of capital losses under income tax
regulations and generally accepted accounting principles.
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).
19
<PAGE> 52
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
2. TRANSACTIONS WITH AFFILIATES
The Fund pays the Adviser an investment advisory and management fee computed at
an annual rate of 0.90% of the first $50 million of the Fund's average daily net
assets, 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 daily net assets.
If total expenses for any fiscal year (excluding taxes, interest, brokerage
commissions and expenses of an extraordinary nature) exceed 2.00% of 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 2000, the Adviser committed to waive some or all of its
advisory fee if the Fund's expense ratio exceeds 1.50%. Any waiver, however,
cannot exceed the aggregate advisory fee paid by the Fund for the applicable
year. Accordingly, for the six months ended June 30, 2000, the Adviser waived
investment advisory and management fees of $26,365.
At June 30, 2000, the Adviser held 36% of the Fund's outstanding shares in a
fiduciary capacity.
3. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2000, cost of purchases of investment
securities (excluding short-term investments) totaled $8,162,447 and proceeds
from sales totaled $8,336,260.
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 portfolio value. The value of purchased calls increases as the value of
the underlying index increases. No put or call options on stock indexes were
bought by the Fund during the six months ended June 30, 2000.
4. BANK LINE OF CREDIT
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 0.50%. There are no fees associated with maintaining this facility.
For the six months ended June 30, 2000, there were no borrowings on this line of
credit.
20
<PAGE> 53
--------------------------------------------------------------------------------
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
21
<PAGE> 54
--------------------------------------------------------------------------------
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> 55
CINCINNATI FUND(R)
SEMI-ANNUAL REPORT
JUNE 30, 2000
(Unaudited)
CINCINNATI FUND(R)
P.O. BOX 5211 CINCINNATI, OHIO 45201-5211
(800) 354-5525
<PAGE> 56
CINCINNATI FUND(R)
---------------------------Highlights at June 30, 2000--------------------------
<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) (2.89%) (9.29%) 5.76% 12.59% 14.11% $18.79
Salomon Broad Investment-Grade
Medium-Term (1-10) Index 1.94 4.56 5.79 6.10
S&P 500 Index (2.66) 7.25 19.66 23.79
Russell 2000 Index (3.78) 14.32 10.57 14.27
<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) (2.89%) (9.29%) 18.29% 80.96% 110.81%
Salomon Broad Investment-Grade
Medium-Term (1-10) Index 1.94 4.56 18.38 34.48
S&P 500 Index (2.66) 7.25 71.34 190.72
Russell 2000 Index (3.78) 14.32 35.20 94.84
</TABLE>
Data sources throughout this report: Gateway Investment Advisers, L.P. and
TowersData
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> 57
CINCINNATI FUND(R)
----------------------------Letter from the Chairman----------------------------
Dear Shareholder:
In the first half of the year, equity investors continued to favor
"new" economy stocks over "old" economy stocks. The Cincinnati business
community is representative of traditional business successes in America, but it
has not attracted a wide variety of high-technology companies. While this
phenomenon has inhibited your Fund's returns for the past eighteen months, there
was a discernable change in market sentiment in the second quarter. Investors'
re-emphasis on traditional companies improved the Fund's return in the second
quarter, but was insufficient to produce a net gain for the first half.
As the first six months of 2000 drew to a close, financial stocks,
utilities and industrials began to reflect their excellent earnings reports. In
addition, other large stock holdings in the Fund stabilized late in the second
quarter.
As we move into the second half of 2000, economic conditions are very
favorable for the continued profitability of Cincinnati's major stock sector
representatives; notably, financials, consumer stocks and industrials. We look
forward to the potential for participation in further recovery for these
formerly out-of-favor companies.
Cordially,
/s/ Walter G. Sall
Walter G. Sall
Chairman
CINCINNATI FUND 2
<PAGE> 58
CINCINNATI FUND(R)
---------------------------Portfolio Manager's Report---------------------------
Many of the locally based stocks which have produced consistently high
returns for the Cincinnati Fund(R) and for generations of local investors have
had a difficult time in 2000.
Procter & Gamble's well-publicized troubles caused the stock to be down
a staggering 47.8% for the first six months this year. In addition, our locally
based financial stocks, particularly banks, reacted negatively to the Federal
Reserve Board's decisions to raise interest rates throughout the period.
Thankfully, a few of the Fund's top positions produced outstanding gains,
notably NS Group and Convergys. Convergys Corporation, the spin-off of the old
Cincinnati Bell Company, provides outsourced, integrated, customer care and
billing services around the world. The company serves other companies in a wide
range of industries, including communications, technology, cable and broadband
services.
--------------------------------------------------------------
Top Five Performers
January 1, 2000 to June 30, 2000
(price appreciation only - no dividends)
--------------------------------------------------------------
NS Group, Inc. 175.7%
Convergys Corporation 68.9
Multi-Color Corporation 43.0
Frisch's Restaurants, Inc. 18.3
Structural Dynamics Research Corp. 17.8
--------------------------------------------------------------
However, the depth of the market decline in interest-rate sensitive
stocks, along with Procter & Gamble, were sufficient enough for the Cincinnati
Fund to post a loss of 5.3% for the first six months of 2000.
Although the names remain similar since year-end, the ranking of our
top ten holdings has changed, mainly due to their relative stock performance.
3 CINCINNATI FUND
<PAGE> 59
CINCINNATI FUND(R)
---------------------------Portfolio Manager's Report--------------------------
--------------------------------------------------------------------
Top Ten Holdings
As of June 30, 2000
-------------------------------------------- -----------------------
As a Percentage
Stocks of Net Assets
--------------------------------------------------------------------
Convergys Corporation 7.2%
Kroger Co. 6.9
Fifth Third Bancorp 6.6
General Electric Company 6.0
Broadwing Inc. 5.8
Firstar Corporation 5.4
Clear Channel Communications, Inc. 4.4
Cintas Corporation 4.3
Procter & Gamble Company 4.3
Cincinnati Financial Corporation 3.2
--------------------------------------------------------------------
As we move into the second half of the year, the Federal Reserve
Board's recent statements and actions indicate a desire to keep interest rates
steady. If rates do stabilize, many of our local banks, insurance companies and
manufacturing firms should enjoy a better environment in which to perform for
the remaining part of the year.
/s/ J. Patrick Rogers
J. Patrick Rogers, CFA
Portfolio Manager
CINCINNATI FUND 4
<PAGE> 60
CINCINNATI FUND(R)
-------------------------- Portfolio Manager's Report---------------------------
GROWTH OF A $10,000 INVESTMENT
November 7, 1994 (inception date) - June 30, 2000
PLOT POINTS FOR CHART
CINCINNATI FUND S&P 500 INDEX RUSSELL 2000
INDEX
$10,000.00 $10,000.00 $10,000.00
$9,780.00 $9,635.80 $9,596.00
$9,910.00 $9,778.70 $9,854.13
$10,070.00 $10,032.26 $9,729.97
$10,350.00 $10,422.52 $10,134.74
$10,620.00 $10,730.08 $10,309.05
$10,930.00 $11,045.55 $10,537.92
$11,290.03 $11,486.27 $10,719.17
$11,650.07 $11,753.09 $11,275.49
$12,099.77 $12,142.12 $11,924.96
$12,310.30 $12,172.60 $12,171.81
$12,739.93 $12,686.28 $12,389.68
$12,689.93 $12,640.99 $11,835.86
$13,169.61 $13,194.66 $12,332.97
$13,407.98 $13,448.79 $12,658.56
$13,459.07 $13,906.59 $12,644.64
$13,918.97 $14,035.50 $13,039.15
$14,542.26 $14,170.67 $13,305.15
$14,552.44 $14,379.54 $14,016.97
$14,920.33 $14,749.10 $14,569.24
$14,767.10 $14,805.29 $13,970.45
$13,929.80 $14,151.19 $12,750.83
$14,542.99 $14,449.64 $13,491.65
$15,156.12 $15,261.71 $14,019.17
$14,869.98 $15,682.63 $13,803.28
$15,922.62 $16,866.67 $14,371.97
$16,087.10 $16,532.54 $14,748.52
$16,452.76 $17,564.17 $15,043.49
$16,619.92 $17,702.93 $14,679.44
$16,275.23 $16,977.11 $13,986.57
$16,515.45 $17,988.94 $14,025.73
$17,183.99 $19,082.67 $15,585.39
$17,821.18 $19,937.57 $16,254.00
$18,730.06 $21,522.61 $17,009.81
$18,301.70 $20,316.91 $17,399.34
$19,315.06 $21,428.25 $18,672.97
$19,158.42 $20,711.69 $17,853.23
$19,889.70 $21,670.43 $17,737.18
$20,749.33 $22,042.51 $18,047.58
$20,608.23 $22,284.98 $17,762.43
$21,723.34 $23,892.17 $19,075.07
$22,881.20 $25,115.69 $19,860.97
$22,640.72 $25,368.36 $19,970.20
$22,006.55 $24,932.27 $18,893.81
$22,476.61 $25,945.02 $18,933.49
$21,689.48 $25,670.01 $17,399.87
$18,672.26 $21,963.26 $14,020.82
$19,361.08 $23,370.22 $15,118.65
$20,858.85 $25,271.16 $15,735.49
$21,667.75 $26,802.84 $16,560.03
$23,216.78 $28,347.22 $17,585.09
$23,116.49 $29,532.70 $17,818.98
$22,581.80 $28,614.83 $16,375.64
$22,370.21 $29,759.71 $16,631.10
$23,473.06 $30,912.30 $18,121.24
$23,294.90 $30,182.46 $18,385.82
$23,239.23 $31,857.59 $19,216.85
$22,760.27 $30,863.63 $18,690.31
$21,902.43 $30,709.31 $17,998.77
$20,832.94 $29,867.57 $18,002.37
$21,746.46 $31,757.59 $18,074.38
$21,802.13 $32,403.22 $19,153.42
$22,257.80 $34,311.77 $21,321.59
$21,213.90 $32,589.32 $20,978.31
$19,654.68 $31,973.38 $24,441.83
$21,708.60 $35,100.38 $22,831.11
$21,786.75 $34,043.86 $21,456.68
$21,741.00 $33,345.96 $20,205.76
$21,080.07 $34,169.60 $21,967.70
-----------------------------------------------
CINCINNATI FUND
Average Annual Total Returns
as of June 30, 2000
-----------------------------------------------
One Year (9.3%)
-----------------------------------------------
Five Years 12.6%
-----------------------------------------------
Life of Fund 14.1%
-----------------------------------------------
Performance data throughout this report represents past performance. The average
annual total return figures assume the reinvestment of dividends. Your
investment return and principal value of an investment will fluctuate so that
your shares, when redeemed, may be worth more or less than the original cost.
5 CINCINNATI FUND
<PAGE> 61
CINCINNATI FUND(R)
--------------Portfolio of Investments - June 30, 2000 (Unaudited)-------------
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
COMMON STOCKS - 98.1%
CONSUMER DISCRETIONARY - 17.7%
8,422 Clear Channel Communications, Inc. * $ 631,650
8,900 E. W. Scripps Company 438,325
8,300 Federated Department Stores, Inc. * 280,125
8,900 Ford Motor Company 382,700
6,490 Frisch's Restaurants, Inc. 68,145
2,300 Gannett Co., Inc. 137,569
3,800 General Motors Corporation 220,637
3,800 Harte-Hanks, Inc. 95,000
20,025 Pomeroy Computer Resources, Inc. * 295,369
1,165 Visteon Corp. 14,129
----------
2,563,649
----------
CONSUMER STAPLES - 11.7%
18,800 Chiquita Brands International, Inc. * 74,025
45,400 Kroger Co. * 1,001,638
10,900 Procter & Gamble Company 624,025
----------
1,699,688
----------
ENERGY - 1.1%
4,700 Ashland Inc. 164,794
----------
FINANCIALS - 23.3%
8,300 American Financial Group, Inc. 205,944
14,529 Cincinnati Financial Corporation 456,755
11,300 Duke-Weeks Realty Corporation 252,837
15,048 Fifth Third Bancorp 951,928
1,949 First Financial Bancorp 38,371
37,400 Firstar Corporation 787,737
2,300 Great American Financial Resources, Inc. 40,681
3,804 KeyCorp 67,046
5,600 Midland Company 137,200
5,600 Ohio Casualty Corporation 59,500
1,700 PNC Financial Services Group, Inc. 79,688
12,125 Provident Financial Group, Inc. 288,727
----------
3,366,414
----------
</TABLE>
See accompanying notes to financial statements
CINCINNATI FUND 6
<PAGE> 62
CINCINNATI FUND(R)
-------------Portfolio of Investments - June 30, 2000 (Unaudited)--------------
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
HEALTH CARE - 4.7%
5,200 Duramed Pharmaceuticals, Inc. * $ 28,275
4,300 Johnson & Johnson 438,063
4,700 Kendle International Inc. * 37,013
15,722 Meridian Diagnostics, Inc. 122,828
5,600 Omnicare, Inc. 50,750
-----------
676,929
-----------
INDUSTRIALS - 25.3%
11,800 Chemed Corporation 332,612
17,100 Cintas Corporation 627,356
20,200 Convergys Corporation * 1,047,875
5,700 Delta Air Lines, Inc. 288,206
16,400 General Electric Company 869,200
19,700 LSI Industries Inc. 299,194
14,100 Milacron Inc. 204,450
-----------
3,668,893
-----------
INFORMATION TECHNOLOGY - 3.0%
28,400 Structural Dynamics Research Corporation * 427,775
-----------
MATERIALS - 1.7%
6,600 AK Steel Holding Corporation 52,800
4,000 Multi-Color Corporation * 32,000
8,000 NS Group, Inc. * 167,500
-----------
252,300
-----------
TELECOMMUNICATION SERVICES - 7.1%
6,250 AT&T Corp. 197,656
32,200 Broadwing Inc. * 835,187
-----------
1,032,843
-----------
UTILITIES - 2.5%
14,100 Cinergy Corp. 358,669
-----------
Total Common Stocks (cost $9,969,236) 14,211,954
</TABLE>
See accompanying notes to financial statements
7 CINCINNATI FUND
<PAGE> 63
CINCINNATI FUND(R)
--------------Portfolio of Investments - June 30, 2000 (Unaudited)-------------
<TABLE>
<CAPTION>
Value
-----
<S> <C>
REPURCHASE AGREEMENT - 2.0% **
4.25% repurchase agreement with Firstar Bank, N.A.,
dated June 30, 2000, due July 3, 2000
(repurchase proceeds $290,103) $ 290,000
-----------
Total Common Stocks and Repurchase Agreement - 100.1% 14,501,954
LIABILITIES IN EXCESS OF OTHER ASSETS - (0.1%) (21,941)
-----------
NET ASSETS - 100.0% $14,480,013
===========
</TABLE>
* Non-income producing.
** Repurchase agreement fully collateralized by U. S. Government
Agency obligations.
See accompanying notes to financial statements
CINCINNATI FUND 8
<PAGE> 64
CINCINNATI FUND(R)
---------Statement of Assets and Liabilities - June 30, 2000 (Unaudited)--------
ASSETS:
Common stocks, at value (cost $9,969,236) $14,211,954
Repurchase agreement 290,000
Cash 73
Dividends and interest receivable 16,027
Other assets 6,272
-----------
Total assets 14,524,326
-----------
LIABILITIES:
Payable for fund shares redeemed 23,530
Other accrued expenses and liabilities 20,783
-----------
Total liabilities 44,313
-----------
NET ASSETS $14,480,013
===========
NET ASSETS CONSIST OF:
Paid-in capital $ 9,621,007
Undistributed net investment income 4,319
Accumulated net realized gain on investment transactions 611,969
Net unrealized appreciation on investments 4,242,718
-----------
Net assets $14,480,013
===========
FUND SHARES OUTSTANDING
(unlimited number of shares authorized, no par value) 770,744
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PRICE PER SHARE $ 18.79
===========
See accompanying notes to financial statements
9 CINCINNATI FUND
<PAGE> 65
CINCINNATI FUND(R)
--Statement of Operations - For the Six Months Ended June 30, 2000 (Unaudited)-
INVESTMENT INCOME:
Dividends $ 118,592
Interest 3,543
-----------
Total investment income 122,135
-----------
EXPENSES:
Investment advisory and management fees 40,145
Transfer agent and accounting fees 40,047
Reports to shareholders 11,278
Professional fees 7,959
Trustees' fees 5,474
Custodian fees 4,893
Registration fees 2,535
Insurance expense 2,188
Other expenses 3,677
-----------
Total expenses 118,196
-----------
NET INVESTMENT INCOME 3,939
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions 611,148
Net decrease in unrealized appreciation on investments (1,640,749)
-----------
Net realized and unrealized loss on investments (1,029,601)
-----------
NET DECREASE IN NET ASSETS FROM OPERATIONS ($1,025,662)
===========
See accompanying notes to financial statements
CINCINNATI FUND 10
<PAGE> 66
CINCINNATI FUND(R)
--------------------Statements of Changes in Net Assets-------------------------
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 2000 Year Ended
(Unaudited) December 31, 1999
----------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 3,939 $ 114,055
Net realized gain on investment transactions 611,148 20,718
Net decrease in unrealized appreciation on investments (1,640,749) (1,192,108)
------------ ------------
Net decrease in net assets from operations (1,025,662) (1,057,335)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- (113,675)
From net realized gain on investment transactions -- (25,972)
------------ ------------
Decrease in net assets from distributions to shareholders -- (139,647)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 376,362 1,442,510
Net asset value of shares issued in reinvestment of
distributions to shareholders -- 110,040
Payments for shares redeemed (4,750,621) (7,019,884)
------------ ------------
Net decrease in net assets from fund shares transactions (4,374,259) (5,467,334)
------------ ------------
NET DECREASE IN NET ASSETS (5,399,921) (6,664,316)
NET ASSETS:
Beginning of period 19,879,934 26,544,250
------------ ------------
End of period $ 14,480,013 $ 19,879,934
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME $ 4,319 $ 380
============ ============
FUND SHARE TRANSACTIONS:
Shares sold 20,183 71,004
Shares issued in reinvestment of distributions to shareholders -- 5,547
Shares redeemed (251,483) (348,159)
------------ ------------
Net decrease in fund shares outstanding (231,300) (271,608)
Shares outstanding, beginning of period 1,002,044 1,273,652
------------ ------------
Shares outstanding, end of period 770,744 1,002,044
============ ============
</TABLE>
See accompanying notes to financial statements
11 CINCINNATI FUND
<PAGE> 67
CINCINNATI FUND(R)
----------Financial Highlights - Per Share Data for a Share Outstanding--------
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 2000 Year Ended December 31,
(Unaudited) 1999 1998 1997 1996 1995 (1)
----------- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
BEGINNING NET ASSET VALUE $19.84 $20.84 $18.98 $15.40 $13.12 $ 9.91
-------- -------- --------- --------- --------- --------
INVESTMENTS OPERATIONS:
Net investment income 0.01 0.12 0.06 0.07 0.02 0.04
Net gain (loss) on investments (1.06) (0.98) 2.20 4.39 2.60 3.46
-------- -------- --------- --------- --------- --------
Total from investment operations (1.05) (0.86) 2.26 4.46 2.62 3.50
-------- -------- --------- --------- --------- --------
DISTRIBUTIONS:
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)
-------- -------- --------- --------- --------- --------
ENDING NET ASSET VALUE $18.79 $19.84 $20.84 $18.98 $15.40 $13.12
======== ======== ======== ======== ======== ========
TOTAL RETURN (5.29%)(4) (4.13%) 11.89% 28.98% 19.98% 35.31%
ENDING NET ASSETS (000's) $14,480 $19,880 $26,544 $17,527 $8,984 $5,877
AVERAGE NET ASSETS RATIOS:
Net expenses(2) 1.48%(3) 1.28% 1.37% 1.69% 2.00% 1.98%
Net investment income(2) 0.05%(3) 0.49% 0.30% 0.50% 0.13% 0.46%
PORTFOLIO TURNOVER RATE 0% 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 net expenses to average net assets would have increased and
the ratio of net investment income to average net assets would have
decreased by 0.01% in 1997 and 0.02% in 1995 had the Adviser not
voluntarily waived fees or reimbursed expenses.
(3) Annualized.
(4) Not annualized.
See accompanying notes to financial statements
CINCINNATI FUND 12
<PAGE> 68
CINCINNATI FUND(R)
------------Notes to Financial Statements - June 30, 2000 (Unaudited)----------
1. SIGNIFICANT ACCOUNTING POLICIES
The Gateway Trust (the Trust) is a family of three diversified mutual funds.
The financial statements of the Cincinnati Fund (the Fund) are included in
this report. The investment objective of the Fund is to achieve capital
appreciation through investment in the common stock of companies with an
important presence in the Greater Cincinnati Area. The financial statements of
the Gateway Fund and the Gateway Small Cap Index Fund are included in separate
reports. The Trust is registered under the Investment Company Act of 1940.
The following is a summary of the Fund's significant accounting policies:
INVESTMENTS VALUATION -- The Fund normally values common stocks at market
value. Prior to May 1, 2000, the Fund normally valued common stocks at the
average of the closing bid and asked quotations. Securities for which market
quotations are not readily available and securities in which trading has been
suspended during the day are valued at fair value as determined in good faith
under procedures adopted by the Board of Trustees.
SHARE VALUATION -- The net asset value per share of the Fund is calculated
daily by dividing the total value of the Fund's assets, less liabilities, by
the number of shares outstanding. The offering price and redemption price per
share is equal to the net asset value per share.
INVESTMENT TRANSACTIONS, INVESTMENT INCOME AND EXPENSES -- Investment
transactions are recorded on the trade date. Capital gains and losses are
calculated on an identified cost basis. Dividend income is recorded on the
ex-dividend date and interest income is accrued daily. Expenses that cannot be
directly associated with a specific Trust fund are allocated under policies
approved by the Board of Trustees.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income and
net realized capital gains, if any, 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.
At June 30, 2000, gross unrealized appreciation on common stocks totaled
$4,821,912 and gross unrealized depreciation totaled $579,194, based on the
federal income tax cost of common stocks.
13 CINCINNATI FUND
<PAGE> 69
CINCINNATI FUND(R)
------------Notes to Financial Statements - June 30, 2000 (Unaudited)----------
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.
2. TRANSACTIONS WITH AFFILIATES
The Fund pays the Adviser an investment advisory and management fee computed
at an annual rate of 0.50% of the Fund's 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 daily net assets.
If total expenses for any fiscal year (excluding taxes, interest, brokerage
commissions and expenses of an extraordinary nature) exceed 2.00% of the
Fund's 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. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2000, proceeds from sales of investment
securities (excluding short-term investments) totaled $4,557,252. There were
no purchases of long-term investment securities during the period.
4. BANK LINE OF CREDIT
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 0.50%. There are no fees associated with maintaining this facility.
For the six months ended June 30, 2000, there were no borrowings on this line
of credit.
CINCINNATI FUND 14
<PAGE> 70
================================AFFORDABILITY================================
$1,000 Minimum Initial Investment
$500 Minimum Initial IRA Investment
$100 Minimum Additional Investment
No Annual Account Charges
No-Fee IRA Accounts
================================CONVENIENCE================================
Free Telephone Exchanges Between Gateway Funds
Automatic Investment Program
Systematic Withdrawal Program
Telephone Redemptions
================================FLEXIBILITY================================
The Cincinnati Fund(R) is available for numerous investment options:
Individuals
IRAs
Trusts
Pension Plans
Gifts to Minors
