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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-02773
THE GATEWAY TRUST
(Exact name of registrant as specified in charter)
Rookwood Tower, 3805 Edwards Road, Suite 600, Cincinnati, OH 45209
(Address of principal executive offices) (Zip code)
Geoffrey Keenan
The Gateway Trust, Rookwood Tower, 3805 Edwards Road,
Suite 600, Cincinnati, OH 45209
(Name and address of agent for service)
Registrant's telephone number, including area code: (513) 719-1100
Date of fiscal year end: December 31
Date of reporting period: June 30, 2003
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS
GATEWAY
FUND
SEMI-ANNUAL REPORT
JUNE 30, 2003
(UNAUDITED)
THE
GATEWAY
TRUST
P.O. Box 5211
CINCINNATI, OH 45201-5211
800.354.6339
GATEWAY FUND
TOTAL RETURNS - JUNE 30, 2003 (UNAUDITED)
Average Annual Total Return
------------------------------------------------------ 6/30/03
One Three Five Ten Since Inception Price
Year Years Years Years on 12/7/77 Per Share
------------------------------------------------------ ---------
GATEWAY FUND 6.10% (0.87%) 4.10% 7.10% 9.25% $21.97
Lehman U. S. Intermediate
Government/Credit Bond Index 10.82% 10.00% 7.65% 6.88%
S&P 500 Index 0.25% (11.19%) (1.61%) 10.04%
Cumulative Total Return
-------------------------------------------------------
One Three Five Ten Since Inception
Year Years Years Years on 12/7/77
-------------------------------------------------------
GATEWAY FUND 6.10% (2.57%) 22.25% 98.65% 859.78%
Lehman U. S. Intermediate
Government/Credit Bond Index 10.82% 33.11% 44.54% 94.47%
S&P 500 Index 0.25% (29.96%) (7.79%) 160.22%
Data sources throughout this report: Gateway Investment Advisers, L.P., Thomson
Financial and Lehman Brothers, Inc.
Performance data throughout this report represents past performance. The total
return figures assume the reinvestment of distributions, but do not reflect the
deduction of taxes paid on distributions or on the redemption of your shares.
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
GATEWAY FUND
LETTER TO SHAREHOLDERS
Dear Shareholder:
In the past six months, investors have faced a variety of challenges and latent
opportunities. A struggling domestic economy motivated the Federal government to
provide substantial fiscal and monetary stimulus. Although evidence of success
was limited, investors responded favorably as the first half of 2003 progressed.
As the equity markets finally stopped declining, the positive features of
Gateway's hedging strategy were exhibited in bold relief. Cash flows from
hedging transactions, no longer needed to replace assets lost to declining
markets, were available to increase the value of shareholder accounts.
YEAR-TO-DATE PERFORMANCE
When looking at year-to-date performance as of June 30, 2003, it initially
appears to be a historically average six-month period with the Gateway Fund
posting a 5.83% return. However, in a pattern similar to 2002, albeit against a
dissimilar background, performance for the first two quarters varied greatly.
The market struggled in the first quarter of 2003, having finished 2002 in
retreat after rallying in October and November off the bear market lows
established in early October. The S&P 500 Index drifted lower on below-average
volume as uncertainty regarding the potential war in Iraq and the domestic
economy kept investors on the sidelines. The S&P 500 Index posted a quarterly
decline of 3.15%. The good news was that the October 2002 lows were not breached
in the first three months of 2003, and the trend turned upward. Gateway Fund's
hedging strategy provided net gains from options which offset much of the
decline in stocks, but ended the quarter down slightly at -0.82%.
For the second quarter of 2003, high premium cash flows and an end to the equity
market sell-off led to a "premium" quarter for the Gateway Fund. The Fund
delivered a total return of 6.70%, making this one of the four highest quarterly
returns over the past fifteen and one-half years. The return was earned
primarily in April and May as the rapid premium accrual in those two months
actually left little to earn in June. The S&P 500 Index continued its strong
feel-good rally before dropping in the last few days of June, netting 15.39% for
the second quarter.
The S&P 500 Index posted a first half return in 2003 of 11.75% as compared to
5.83% for the Gateway Fund. For the same period, the Lehman U. S. Intermediate
Government/Credit Bond Index was up 4.26%.
THREE-YEAR AND FIVE-YEAR PERFORMANCE
Looking at longer time periods, the value of Gateway's hedging strategy through
option transactions comes into clearer focus. For the three-year period from
July 1, 2000 to June 30, 2003, the S&P 500 Index declined by 29.96%. Hedging in
the Gateway Fund restored most of the value lost to underlying stock declines.
The Fund dropped only 2.57% during this same time period. The Fund's hedging
strategy was severely tested and proved effective in lowering the risk over the
past three years.
2
GATEWAY FUND
LETTER TO SHAREHOLDERS
The difference in the five-year return is even more dramatic. From July 1, 1998
to June 30, 2003, the Gateway Fund delivered a total cumulative POSITIVE RETURN
OF 22.25%, while the S&P 500 Index DECLINED BY 7.79%. Premiums from option
transactions may be earned swiftly in a rapid sell-off such as occurred during
the third quarter of 1998 and, to a limited extent, during March and September
of 2001 and July and October of 2002. More typically, however, over an extended
market sell-off, premiums are earned gradually and can turn even the worst bear
market into a much less horrifying experience. Such was the case during this
turbulent five-year period.
The illustration below compares the Gateway Fund's performance relative to the
S&P 500 Index over the one-, three- and five-year periods ended June 30, 2003.
TOTAL RETURN COMPARISON
AS OF JUNE 30, 2003
[BAR CHART]
ONE YEAR THREE YEARS FIVE YEARS
-----------------------------------
GATEWAY FUND 6.10% (2.57%) 22.25%
S&P 500 INDEX 0.25% (29.96%) (7.79%)
Performance data represents past performance. The total return figures shown
assume the reinvestment of distributions, but do not reflect the deduction of
taxes paid on distributions or on the redemption of your shares. 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.
3
GATEWAY FUND
LETTER TO SHAREHOLDERS
MARKET PERSPECTIVES
For several reasons including an economic recession, geopolitical terror,
high-profile bankruptcies, and a crisis in confidence regarding reported
financial information, the last three and one-half years have generated
uncertainty which led to heightened volatility in the capital markets.
For equity investors, bear market conditions prevailed from the first quarter of
2000 through the first quarter of 2003. The second quarter of 2003 somewhat
mitigated the devastation of the bear market for equity investors. However, even
accounting for its 15.39% return in the second quarter of 2003, the S&P 500
Index DECLINED BY 30.26% for the period from January 1, 2000 through June 30,
2003. To bring the S&P 500 Index back to even, the market would need to continue
to rally another 43.39%!
For bond investors, the dramatic impacts of interest rate cuts by the Federal
Reserve Board and the shrinking Treasury bond supply have produced an
extraordinary three and one-half year return through June 30, 2003. The Lehman
U. S. Intermediate Government/Credit Bond Index delivered a total return of
37.40% over this time period. With interest rates at 40-year lows and the
prospects for government deficits on the increase, that performance will likely
be difficult to repeat.
For Gateway Fund investors, volatility in security prices directly translates
into higher prices for index options. High option premiums help to provide both
improved protection during downward market moves and returns in excess of those
available from other investments of comparable risk. Over the three and one-half
year period from January 1, 2000 through June 30, 2003, the Gateway Fund
returned a positive 3.56%, demonstrating the value of net cash flows from
options transactions. In volatile times, not losing money can be more rewarding
than chasing spectacular returns.
We cordially invite you to visit our website at www.gatewayfund.com for updates
on the Fund's investment results and activities. As always, we appreciate your
support and continued confidence.
/s/ Walter G. Sall
- --------------------
Walter G. Sall
Chairman
/s/ Patrick Rogers
- --------------------
Patrick Rogers, CFA
Portfolio Manager
4
GATEWAY FUND
LETTER TO SHAREHOLDERS
GROWTH OF A $10,000 INVESTMENT
July 1, 1993 - June 30, 2003
[PERFORMANCE GRAPH]
LEHMAN U.S.
INTERMEDIATE
GOVERNMENT/CREDIT
GATEWAY FUND S&P 500 INDEX BOND INDEX
- --------------------------------------------------------------------------
$10,000.00 $10,000.00 $10,000.00
- --------------------------------------------------------------------------
$10,056.60 $ 9,959.80 $10,024.00
- --------------------------------------------------------------------------
$10,195.08 $10,337.67 $10,183.38
- --------------------------------------------------------------------------
$10,151.04 $10,258.38 $10,225.13
- --------------------------------------------------------------------------
$10,245.85 $10,470.63 $10,252.74
- --------------------------------------------------------------------------
$10,283.76 $10,370.85 $10,195.33
- --------------------------------------------------------------------------
$10,390.71 $10,496.23 $10,242.22
- --------------------------------------------------------------------------
$10,567.71 $10,853.10 $10,355.91
- --------------------------------------------------------------------------
$10,469.38 $10,558.98 $10,202.65
- --------------------------------------------------------------------------
$10,121.93 $10,099.67 $10,034.30
- --------------------------------------------------------------------------
$10,214.12 $10,229.14 $ 9,966.07
- --------------------------------------------------------------------------
$10,418.27 $10,395.88 $ 9,973.04
- --------------------------------------------------------------------------
$10,260.22 $10,141.08 $ 9,974.04
- --------------------------------------------------------------------------
$10,551.29 $10,474.11 $10,117.67
- --------------------------------------------------------------------------
$10,723.29 $10,902.50 $10,149.03
- --------------------------------------------------------------------------
$10,729.90 $10,636.48 $10,055.66
- --------------------------------------------------------------------------
$10,909.29 $10,874.74 $10,054.66
- --------------------------------------------------------------------------
$10,723.26 $10,478.68 $10,009.41
- --------------------------------------------------------------------------
$10,969.08 $10,634.08 $10,044.44
- --------------------------------------------------------------------------
$11,153.32 $10,909.82 $10,213.19
- --------------------------------------------------------------------------
$11,316.30 $11,334.21 $10,424.60
- --------------------------------------------------------------------------
$11,429.67 $11,668.68 $10,484.02
- --------------------------------------------------------------------------
$11,522.19 $12,011.74 $10,614.03
- --------------------------------------------------------------------------
$11,600.54 $12,491.01 $10,934.57
- --------------------------------------------------------------------------
$11,643.46 $12,781.18 $11,007.83
- --------------------------------------------------------------------------
$11,714.94 $13,204.23 $11,008.93
- --------------------------------------------------------------------------
$11,772.12 $13,237.38 $11,109.11
- --------------------------------------------------------------------------
$11,900.79 $13,795.99 $11,189.10
- --------------------------------------------------------------------------
$11,936.68 $13,746.74 $11,313.30
- --------------------------------------------------------------------------
$12,101.77 $14,348.85 $11,461.50
- --------------------------------------------------------------------------
$12,180.07 $14,625.21 $11,581.85
- --------------------------------------------------------------------------
$12,338.53 $15,123.05 $11,681.45
- --------------------------------------------------------------------------
$12,295.34 $15,263.24 $11,544.78
- --------------------------------------------------------------------------
$12,389.03 $15,410.23 $11,484.75
- --------------------------------------------------------------------------
$12,547.99 $15,637.37 $11,444.55
- --------------------------------------------------------------------------
$12,656.40 $16,039.25 $11,435.39
- --------------------------------------------------------------------------
$12,764.74 $16,100.36 $11,556.61
- --------------------------------------------------------------------------
$12,561.91 $15,389.05 $11,591.28
- --------------------------------------------------------------------------
$12,735.76 $15,713.60 $11,600.55
- --------------------------------------------------------------------------
$13,032.76 $16,596.71 $11,761.80
- --------------------------------------------------------------------------
$13,192.54 $17,054.45 $11,969.98
- --------------------------------------------------------------------------
$13,417.74 $18,342.06 $12,127.99
- --------------------------------------------------------------------------
$13,462.82 $17,978.70 $12,050.37
- --------------------------------------------------------------------------
$13,688.60 $19,100.57 $12,097.36
- --------------------------------------------------------------------------
$13,703.11 $19,251.47 $12,120.35
- --------------------------------------------------------------------------
$13,623.63 $18,462.16 $12,036.72
- --------------------------------------------------------------------------
$13,901.28 $19,562.50 $12,178.75
- --------------------------------------------------------------------------
$14,010.82 $20,751.90 $12,279.84
- --------------------------------------------------------------------------
$14,200.81 $21,681.59 $12,391.58
- --------------------------------------------------------------------------
$14,456.99 $23,405.27 $12,643.13
- --------------------------------------------------------------------------
$14,215.41 $22,094.11 $12,579.92
- --------------------------------------------------------------------------
$14,647.28 $23,302.66 $12,725.84
- --------------------------------------------------------------------------
$14,419.95 $22,523.42 $12,867.10
- --------------------------------------------------------------------------
$14,896.67 $23,566.02 $12,895.41
- --------------------------------------------------------------------------
$15,125.49 $23,970.65 $12,998.57
- --------------------------------------------------------------------------
$15,366.28 $24,234.33 $13,168.85
- --------------------------------------------------------------------------
$15,590.94 $25,982.11 $13,158.32
- --------------------------------------------------------------------------
$15,743.42 $27,312.65 $13,200.42
- --------------------------------------------------------------------------
$15,904.16 $27,587.42 $13,266.42
- --------------------------------------------------------------------------
$16,008.65 $27,113.19 $13,363.27
- --------------------------------------------------------------------------
$16,249.74 $28,214.53 $13,448.79
- --------------------------------------------------------------------------
$16,217.57 $27,915.45 $13,495.87
- --------------------------------------------------------------------------
$15,396.63 $23,884.46 $13,707.75
- --------------------------------------------------------------------------
$15,839.29 $25,414.50 $14,051.81
- --------------------------------------------------------------------------
$16,387.48 $27,481.72 $14,037.76
- --------------------------------------------------------------------------
$16,838.14 $29,147.38 $14,036.36
- --------------------------------------------------------------------------
$16,979.75 $30,826.86 $14,092.50
- --------------------------------------------------------------------------
$17,261.61 $32,116.04 $14,170.01
- --------------------------------------------------------------------------
$17,285.78 $31,117.87 $13,961.71
- --------------------------------------------------------------------------
$17,625.10 $32,362.90 $14,066.43
- --------------------------------------------------------------------------
$17,916.26 $33,616.31 $14,110.03
- --------------------------------------------------------------------------
$17,989.00 $32,822.63 $14,001.39
- --------------------------------------------------------------------------
$18,304.53 $34,644.29 $14,011.19
- --------------------------------------------------------------------------
$18,183.17 $33,563.38 $13,998.58
- --------------------------------------------------------------------------
$18,280.27 $33,395.57 $14,009.78
- --------------------------------------------------------------------------
$18,304.58 $32,480.19 $14,140.07
- --------------------------------------------------------------------------
$18,741.33 $34,535.54 $14,176.83
- --------------------------------------------------------------------------
$18,943.55 $35,237.65 $14,193.84
- --------------------------------------------------------------------------
$19,180.53 $37,313.15 $14,147.00
- --------------------------------------------------------------------------
$19,268.76 $35,440.03 $14,094.66
- --------------------------------------------------------------------------
$19,341.99 $34,770.21 $14,210.24
- --------------------------------------------------------------------------
$19,819.73 $38,170.74 $14,358.02
- --------------------------------------------------------------------------
$19,893.07 $37,021.80 $14,325.00
- --------------------------------------------------------------------------
$19,966.67 $36,262.85 $14,347.92
- --------------------------------------------------------------------------
$20,387.97 $37,158.54 $14,600.44
- --------------------------------------------------------------------------
$20,363.50 $36,578.87 $14,711.41
- --------------------------------------------------------------------------
$21,027.35 $38,850.42 $14,885.00
- --------------------------------------------------------------------------
$20,857.03 $36,799.11 $15,020.45
- --------------------------------------------------------------------------
$20,686.00 $36,644.56 $15,089.55
- --------------------------------------------------------------------------
$20,305.38 $33,756.97 $15,294.77
- --------------------------------------------------------------------------
$20,447.52 $33,922.38 $15,576.19
- --------------------------------------------------------------------------
$20,964.84 $35,126.62 $15,831.64
- --------------------------------------------------------------------------
$20,216.39 $31,926.59 $15,982.04
- --------------------------------------------------------------------------
$19,565.43 $29,905.63 $16,105.10
- --------------------------------------------------------------------------
$20,109.35 $32,226.31 $16,063.23
- --------------------------------------------------------------------------
$20,270.22 $32,442.23 $16,153.18
- --------------------------------------------------------------------------
$20,181.03 $31,653.88 $16,212.95
- --------------------------------------------------------------------------
$20,154.80 $31,343.67 $16,550.18
- --------------------------------------------------------------------------
$19,459.46 $29,384.69 $16,715.68
- --------------------------------------------------------------------------
$18,700.54 $27,013.35 $16,959.73
- --------------------------------------------------------------------------
$18,986.65 $27,529.30 $17,241.26
- --------------------------------------------------------------------------
$19,495.50 $29,640.80 $17,068.85
- --------------------------------------------------------------------------
$19,729.44 $29,901.64 $16,974.97
- --------------------------------------------------------------------------
$19,792.58 $29,465.08 $17,063.24
- --------------------------------------------------------------------------
$19,630.28 $28,896.40 $17,198.04
- --------------------------------------------------------------------------
$19,997.36 $29,982.90 $16,938.35
- --------------------------------------------------------------------------
$19,495.43 $28,165.94 $17,217.83
- --------------------------------------------------------------------------
$19,485.68 $27,960.33 $17,390.01
- --------------------------------------------------------------------------
$18,721.84 $25,969.55 $17,539.56
- --------------------------------------------------------------------------
$18,047.86 $23,946.53 $17,746.53
- --------------------------------------------------------------------------
$18,271.65 $24,102.18 $18,010.95
- --------------------------------------------------------------------------
$17,131.50 $21,484.68 $18,333.35
- --------------------------------------------------------------------------
$18,478.04 $23,373.18 $18,261.85
- --------------------------------------------------------------------------
$19,134.01 $24,747.53 $18,245.41
- --------------------------------------------------------------------------
$18,768.55 $23,294.85 $18,643.16
- --------------------------------------------------------------------------
$18,550.83 $22,686.85 $18,641.30
- --------------------------------------------------------------------------
$18,298.54 $22,346.55 $18,904.14
- --------------------------------------------------------------------------
$18,615.10 $22,563.31 $18,923.05
- --------------------------------------------------------------------------
$19,555.17 $24,420.27 $19,066.86
- --------------------------------------------------------------------------
$19,871.96 $25,704.78 $19,450.10
- --------------------------------------------------------------------------
$19,862.03 $26,033.80 $19,436.49
- --------------------------------------------------------------------------
GATEWAY FUND
AVERAGE ANNUAL TOTAL RETURNS
AS OF JUNE 30, 2003
One Year 6.10%
Five Year 4.10%
Ten years 7.10%
Performance data throughout this report represents past performance. The average
annual total return figures assume the reinvestment of distributions, but do not
reflect the deduction of taxes paid on distributions or on the redemption of
your shares. 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
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2003 (UNAUDITED)
SHARES VALUE (000'S)
- ------ -------------
COMMON STOCKS - 100.2%
CONSUMER DISCRETIONARY - 11.1%
8,600 American Greetings Corporation - Class A * $ 169
580,750 AOL Time Warner Inc. * 9,344
37,600 AutoNation, Inc. * 591
12,700 AutoZone, Inc. * 965
38,200 Bed Bath & Beyond Inc. * 1,483
41,300 Best Buy Co., Inc. * 1,814
15,100 Big Lots, Inc. * 227
10,200 Black & Decker Corporation 443
11,700 Brunswick Corporation 293
81,700 Carnival Corporation 2,656
8,000 Centex Corporation 622
27,350 Circuit City Stores - Circuit City Group 241
79,600 Clear Channel Communications, Inc. * 3,374
299,710 Comcast Corporation - Class A * 9,045
9,600 Cooper Tire & Rubber Company 169
19,300 Dana Corporation 223
22,200 Darden Restaurants, Inc. 421
72,793 Delphi Corporation 628
11,000 Dillard's, Inc. - Class A 148
43,225 Dollar General Corporation 789
10,700 Dow Jones & Company, Inc. 460
37,900 Eastman Kodak Company 1,037
40,100 eBay Inc. * 4,178
22,400 Family Dollar Stores, Inc. 855
24,800 Federated Department Stores, Inc. 914
238,313 Ford Motor Company 2,619
19,400 Fortune Brands, Inc. 1,013
34,700 Gannett Co., Inc. 2,665
114,800 Gap, Inc. 2,154
72,900 General Motors Corporation 2,624
22,700 Genuine Parts Company 727
22,800 Goodyear Tire & Rubber Company * 120
39,300 Harley-Davidson, Inc. 1,566
14,600 Harrah's Entertainment, Inc. * 587
22,500 Hasbro, Inc. 394
48,900 Hilton Hotels Corporation 625
302,050 Home Depot, Inc. 10,004
11,100 International Game Technology 1,136
50,100 Interpublic Group of Companies, Inc. * 670
34,800 J. C. Penney Company, Inc. 586
11,600 Johnson Controls, Inc. 993
16,800 Jones Apparel Group, Inc. * 492
6,200 KB HOME 384
See accompanying notes to financial statements.
6
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2003 (UNAUDITED)
SHARES VALUE (000'S)
- ------ -------------
CONSUMER DISCRETIONARY (CONTINUED)
10,600 Knight-Ridder, Inc. $ 731
43,800 Kohl's Corporation * 2,250
25,300 Leggett & Platt, Incorporated 519
68,000 Limited Brands 1,054
13,900 Liz Claiborne Inc. 490
101,400 Lowe's Companies, Inc. 4,355
30,300 Marriott International, Inc. - Class A 1,164
56,800 Mattel, Inc. 1,075
37,400 May Department Stores Company 833
10,200 Maytag Corporation 249
165,000 McDonald's Corporation 3,640
25,200 McGraw-Hill Companies, Inc. 1,562
6,500 Meredith Corporation 286
19,700 New York Times Company - Class A 896
34,700 Newell Rubbermaid Inc. 972
34,300 NIKE, Inc. - Class B 1,835
17,600 Nordstrom, Inc. 344
40,100 Office Depot, Inc. * 582
24,500 Omnicom Group Inc. 1,757
8,000 Pulte Homes, Inc. 493
21,900 RadioShack Corporation 576
7,800 Reebok International Ltd. * 262
41,000 Sears, Roebuck and Co. 1,379
19,500 Sherwin-Williams Company 524
7,600 Snap-on Incorporated 221
11,500 Stanley Works 317
61,500 Staples, Inc. * 1,129
50,400 Starbucks Corporation * 1,236
25,900 Starwood Hotels & Resorts Worldwide, Inc. 740
118,100 Target Corporation 4,469
18,900 Tiffany & Co. 618
68,300 TJX Companies, Inc. 1,287
27,500 Toys R Us, Inc. * 333
39,600 Tribune Company 1,913
7,600 Tupperware Corporation 109
29,700 Univision Communications Inc. - Class A * 903
14,100 VF Corporation 479
228,841 Viacom Inc. - Class B * 9,991
16,809 Visteon Corp. 115
265,300 Walt Disney Company 5,240
15,000 Wendy's International, Inc. 435
8,900 Whirlpool Corporation 567
38,300 Yum! Brands, Inc. * 1,132
-----------
129,510
-----------
See accompanying notes to financial statements.
7
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2003 (UNAUDITED)
SHARES VALUE (000'S)
- ------ -------------
CONSUMER STAPLES - 11.7%
4,700 Adolph Coors Company - Class B $ 230
7,600 Alberto-Culver Company - Class B 388
49,300 Albertson's, Inc. 947
268,600 Altria Group, Inc. 12,205
111,300 Anheuser-Busch Companies 5,682
83,940 Archer-Daniels-Midland Company 1,080
30,500 Avon Products, Inc. 1,897
7,900 Brown-Forman Corporation - Class B 621
53,300 Campbell Soup Company 1,306
28,500 Clorox Company 1,216
322,000 Coca-Cola Company 14,944
58,400 Coca-Cola Enterprises Inc. 1,060
69,900 Colgate-Palmolive Company 4,051
69,800 ConAgra Foods, Inc. 1,647
59,200 Costco Wholesale Corporation * 2,167
51,000 CVS Corporation 1,430
47,900 General Mills, Inc. 2,271
135,700 Gillette Company 4,323
45,600 H. J. Heinz Company 1,504
17,700 Hershey Foods Corporation 1,233
53,000 Kellogg Company 1,822
66,800 Kimberly-Clark Corporation 3,483
99,200 Kroger Co. * 1,655
18,200 McCormick & Company, Incorporated 495
36,400 Pepsi Bottling Group, Inc. 729
224,530 PepsiCo, Inc. 9,992
168,000 Procter & Gamble Company 14,982
11,000 R. J. Reynolds Tobacco Holdings, Inc. 409
57,300 Safeway Inc. * 1,172
101,700 Sara Lee Corporation 1,913
17,400 Supervalu, Inc. 371
84,900 SYSCO Corporation 2,550
21,800 UST Inc. 764
574,200 Wal-Mart Stores, Inc. 30,817
133,200 Walgreen Co. 4,009
18,300 Winn-Dixie Stores, Inc. 225
29,200 Wm. Wrigley Jr. Company 1,642
-----------
137,232
-----------
ENERGY - 5.8%
11,600 Amerada Hess Corporation 571
32,247 Anadarko Petroleum Corporation 1,434
20,757 Apache Corporation 1,350
8,900 Ashland Inc. 273
See accompanying notes to financial statements.
8
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2003 (UNAUDITED)
SHARES VALUE (000'S)
- ------ -------------
ENERGY (CONTINUED)
43,700 Baker Hughes Incorporated $ 1,467
20,550 BJ Services Company * 768
26,100 Burlington Resources Inc. 1,411
138,757 ChevronTexaco Corporation 10,018
87,931 ConocoPhillips 4,819
29,800 Devon Energy Corporation 1,591
15,000 EOG Resources, Inc. 628
874,332 Exxon Mobil Corporation 31,397
56,700 Halliburton Company 1,304
13,100 Kerr-McGee Corporation 587
40,500 Marathon Oil Corporation 1,067
18,800 Nabors Industries, Ltd. * 744
17,400 Noble Corporation * 597
49,100 Occidental Petroleum Corporation 1,647
12,200 Rowan Companies, Inc. * 273
75,700 Schlumberger Limited 3,601
9,900 Sunoco, Inc. 374
41,380 Transocean Inc. * 909
33,500 Unocal Corporation 961
-----------
67,791
-----------
FINANCIALS - 20.5%
34,100 ACE Limited 1,169
67,100 AFLAC Incorporated 2,063
91,400 Allstate Corporation 3,258
13,800 Ambac Financial Group, Inc. 914
170,800 American Express Company 7,141
338,936 American International Group, Inc. 18,703
46,100 AmSouth Bancorporation 1,007
40,200 Aon Corporation 968
12,200 Apartment Investment & Management Company
- Class A 422
195,153 Bank of America Corporation 15,423
99,600 Bank of New York Company, Inc. 2,864
151,230 Bank One Corporation 5,623
61,200 BB&T Corporation 2,099
12,950 Bear Stearns Companies Inc. 938
28,800 Capital One Financial Corporation 1,416
174,575 Charles Schwab Corporation 1,762
29,285 Charter One Financial, Inc. 913
22,300 Chubb Corporation 1,338
21,000 Cincinnati Financial Corporation 779
667,765 Citigroup Inc. 28,580
22,700 Comerica Incorporated 1,056
16,400 Countrywide Financial Corporation 1,141
See accompanying notes to financial statements.
9
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2003 (UNAUDITED)
SHARES VALUE (000'S)
- ------ -------------
FINANCIALS (CONTINUED)
53,500 Equity Office Properties Trust $ 1,445
35,100 Equity Residential 911
129,200 Fannie Mae 8,713
14,300 Federated Investors, Inc. - Class B 392
75,219 Fifth Third Bancorp 4,313
16,350 First Tennessee National Corporation 718
136,399 FleetBoston Financial 4,052
33,400 Franklin Resources, Inc. 1,305
90,400 Freddie Mac 4,590
20,000 Golden West Financial Corporation 1,600
61,300 Goldman Sachs Group, Inc. 5,134
34,500 Hartford Financial Services Group, Inc. 1,737
30,510 Huntington Bancshares Incorporated 596
259,300 J. P. Morgan Chase & Co. 8,863
30,100 Janus Capital Group Inc. 494
18,700 Jefferson-Pilot Corporation 775
37,400 John Hancock Financial Services, Inc. 1,149
55,200 KeyCorp 1,395
31,500 Lehman Brothers Holdings Inc. 2,094
23,000 Lincoln National Corporation 820
24,100 Loews Corporation 1,140
69,800 Marsh & McLennan Companies, Inc. 3,565
28,300 Marshall & Ilsley Corporation 865
18,900 MBIA Inc. 921
166,000 MBNA Corporation 3,460
56,000 Mellon Financial Corporation 1,554
117,200 Merrill Lynch & Co., Inc. 5,471
95,000 MetLife, Inc. 2,690
13,100 MGIC Investment Corporation 611
19,700 Moody's Corporation 1,038
140,800 Morgan Stanley 6,019
79,500 National City Corporation 2,601
21,000 North Fork Bancorporation, Inc. 715
28,600 Northern Trust Corporation 1,195
24,100 Plum Creek Timber Company, Inc. 625
36,900 PNC Financial Services Group, Inc. 1,801
41,600 Principal Financial Group, Inc. 1,342
28,200 Progressive Corporation 2,061
37,500 Providian Financial Corporation * 347
73,700 Prudential Financial, Inc. 2,480
28,700 Regions Financial Corporation 970
18,000 SAFECO Corporation 635
24,050 Simon Property Group, Inc. 939
See accompanying notes to financial statements.
10
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2003 (UNAUDITED)
SHARES VALUE (000'S)
- ------ -------------
FINANCIALS (CONTINUED)
60,000 SLM Corporation $ 2,350
44,800 SouthTrust Corporation 1,219
29,400 St. Paul Companies, Inc. 1,073
43,100 State Street Corporation 1,698
36,600 SunTrust Banks, Inc. 2,172
39,500 Synovus Financial Corp. 849
15,900 T. Rowe Price Group Inc. 600
15,400 Torchmark Corporation 574
130,829 Travelers Property Casualty Corp. - Class B 2,063
248,783 U. S. Bancorp 6,095
25,700 Union Planters Corporation 798
32,600 UnumProvident Corporation 437
176,800 Wachovia Corporation 7,065
123,050 Washington Mutual, Inc. 5,082
220,000 Wells Fargo & Company 11,088
17,700 XL Capital Ltd. - Class A 1,469
11,800 Zions Bancorporation 597
-----------
238,947
-----------
HEALTH CARE - 14.9%
202,900 Abbott Laboratories 8,879
19,600 Aetna Inc. 1,180
16,800 Allergan, Inc. 1,295
14,300 AmerisourceBergen Corporation 992
167,377 Amgen Inc. * 11,121
18,400 Anthem, Inc. * 1,420
27,175 Applera Corp. - Applied Biosystems Group 517
6,900 Bausch & Lomb Incorporated 259
77,100 Baxter International Inc. 2,005
33,000 Becton, Dickinson and Company 1,282
19,400 Biogen, Inc. * 737
33,650 Biomet, Inc. 964
53,000 Boston Scientific Corporation * 3,238
251,500 Bristol-Myers Squibb Company 6,828
6,700 C. R. Bard, Inc. 478
58,750 Cardinal Health, Inc. 3,778
24,400 Chiron Corporation * 1,067
18,200 CIGNA Corporation 854
146,000 Eli Lilly and Company 10,070
47,100 Forest Laboratories, Inc. * 2,579
27,900 Genzyme Corporation * 1,166
39,800 Guidant Corporation 1,767
66,650 HCA Inc. 2,135
31,000 Health Management Associates, Inc. - Class A 572
See accompanying notes to financial statements.
11
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2003 (UNAUDITED)
SHARES VALUE (000'S)
- ------ -------------
HEALTH CARE (CONTINUED)
21,100 Humana Inc. * $ 319
31,700 IMS Health Incorporated 570
385,772 Johnson & Johnson 19,944
31,199 King Pharmaceuticals Inc. * 460
11,700 Manor Care, Inc. * 293
37,800 McKesson Corporation 1,351
32,700 MedImmune, Inc. * 1,189
158,400 Medtronic Inc. 7,598
291,700 Merck & Co., Inc. 17,662
6,300 Millipore Corporation * 280
1,035,700 Pfizer Inc. 35,369
13,700 Quest Diagnostics Incorporated * 874
15,400 Quintiles Transnational Corp. * 219
190,600 Schering-Plough Corporation 3,545
23,100 St. Jude Medical, Inc. * 1,328
25,700 Stryker Corporation 1,783
61,500 Tenet Healthcare Corporation * 716
79,000 UnitedHealth Group Incorporated 3,970
13,900 Watson Pharmaceuticals, Inc. * 561
19,400 Wellpoint Health Networks Inc. * 1,635
171,800 Wyeth 7,826
25,420 Zimmer Holdings, Inc. * 1,145
-----------
173,820
-----------
INDUSTRIALS - 10.4%
50,700 3M Co. 6,539
27,100 Allied Waste Industries, Inc. * 272
25,525 American Power Conversion Corporation 398
9,450 American Standard Companies Inc. * 699
22,700 Apollo Group, Inc. - Class A * 1,402
14,300 Avery Dennison Corporation 718
109,252 Boeing Company 3,749
48,700 Burlington Northern Santa Fe Corporation 1,385
44,700 Caterpillar Inc. 2,488
133,800 Cendant Corporation * 2,451
22,200 Cintas Corporation 787
12,100 Cooper Industries, Ltd. - Class A 500
7,700 Crane Co. 174
27,800 CSX Corporation 836
5,400 Cummins, Inc. 194
19,800 Danaher Corporation 1,347
31,000 Deere & Company 1,417
16,100 Delta Air Lines, Inc. 236
7,500 Deluxe Corporation 336
See accompanying notes to financial statements.
12
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2003 (UNAUDITED)
SHARES VALUE (000'S)
- ------ -------------
INDUSTRIALS (CONTINUED)
26,200 Dover Corporation $ 785
9,500 Eaton Corporation 747
54,700 Emerson Electric Co. 2,795
18,500 Equifax Inc. 481
38,700 FedEx Corp. 2,401
10,500 Fluor Corporation 353
26,000 General Dynamics Corporation 1,885
1,292,736 General Electric Company 37,076
15,300 Goodrich Corporation 321
23,200 H&R Block, Inc. 1,003
111,200 Honeywell International Inc. 2,986
39,900 Illinois Tool Works Inc. 2,627
22,000 Ingersoll-Rand Company 1,041
11,900 ITT Industries, Inc. 779
59,200 Lockheed Martin Corporation 2,816
63,900 Masco Corporation 1,524
8,300 McDermott International, Inc. * 53
14,500 Monster Worldwide Inc. * 286
8,900 Navistar International Corporation * 290
50,500 Norfolk Southern Corporation 970
23,746 Northrop Grumman Corporation 2,049
15,100 PACCAR Inc. 1,020
16,000 Pall Corporation 360
15,400 Parker-Hannifin Corporation 647
30,700 Pitney Bowes Inc. 1,179
10,425 Power-One, Inc. * 75
14,700 R. R. Donnelley & Sons Company 384
52,700 Raytheon Company 1,731
22,500 Robert Half International Inc. * 426
24,200 Rockwell Automation, Inc. 577
23,400 Rockwell Collins 576
8,100 Ryder System, Inc. 207
100,650 Southwest Airlines Co. 1,731
17,700 Textron Inc. 691
7,600 Thomas & Betts Corporation * 110
259,303 Tyco International Ltd. 4,922
32,900 Union Pacific Corporation 1,909
146,100 United Parcel Service, Inc. - Class B 9,307
61,100 United Technologies Corporation 4,328
11,900 W. W. Grainger, Inc. 556
77,400 Waste Management, Inc. 1,865
-----------
121,797
-----------
See accompanying notes to financial statements.
13
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2003 (UNAUDITED)
SHARES VALUE (000'S)
- ------ -------------
INFORMATION TECHNOLOGY - 16.2%
104,225 ADC Telecommunications, Inc. * $ 243
30,000 Adobe Systems Incorporated 962
44,625 Advanced Micro Devices, Inc. * 286
60,625 Agilent Technologies, Inc. * 1,185
49,700 Altera Corporation * 815
47,300 Analog Devices, Inc. * 1,647
12,800 Andrew Corporation * 118
46,950 Apple Computer, Inc. * 898
214,500 Applied Materials, Inc. * 3,402
39,400 Applied Micro Circuits Corporation * 238
14,800 Autodesk, Inc. 239
77,900 Automatic Data Processing, Inc. 2,638
48,403 Avaya Inc. * 313
30,250 BMC Software, Inc. * 494
35,800 Broadcom Corporation - Class A * 892
56,300 CIENA Corporation * 292
923,275 Cisco Systems, Inc. * 15,409
22,300 Citrix Systems, Inc. * 454
74,800 Computer Associates International, Inc. 1,667
24,400 Computer Sciences Corporation * 930
49,000 Compuware Corporation * 283
24,425 Comverse Technology, Inc. * 367
66,100 Concord EFS, Inc. * 973
22,600 Convergys Corporation * 362
155,775 Corning Incorporated * 1,151
335,000 Dell Computer Corporation * 10,707
18,600 Electronic Arts Inc. * 1,376
61,900 Electronic Data Systems Corporation 1,328
285,663 EMC Corporation * 2,991
97,800 First Data Corporation 4,053
24,950 Fiserv, Inc. * 889
42,050 Gateway, Inc. * 154
396,755 Hewlett-Packard Company 8,451
860,628 Intel Corporation 17,887
219,700 International Business Machines Corporation 18,125
26,700 Intuit Inc. * 1,189
25,700 Jabil Circuit, Inc. * 568
183,850 JDS Uniphase Corporation * 645
24,800 KLA-Tencor Corporation * 1,153
16,400 Lexmark International, Inc. * 1,161
40,600 Linear Technology Corporation 1,308
48,325 LSI Logic Corporation * 342
532,940 Lucent Technologies Inc. * 1,082
See accompanying notes to financial statements.
14
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2003 (UNAUDITED)
SHARES VALUE (000'S)
- ------ -------------
INFORMATION TECHNOLOGY (CONTINUED)
42,000 Maxim Integrated Products, Inc. $ 1,436
10,950 Mercury Interactive Corporation * 423
78,900 Micron Technology, Inc. * 918
1,390,200 Microsoft Corporation 35,603
24,975 Molex Incorporated 674
298,871 Motorola, Inc. 2,818
23,600 National Semiconductor Corporation * 465
12,700 NCR Corporation * 325
44,050 Network Appliance, Inc. * 714
47,750 Novell, Inc. * 147
19,500 Novellus Systems, Inc. * 714
20,500 NVIDIA Corporation * 472
684,948 Oracle Corporation * 8,233
34,150 Parametric Technology Corporation * 104
48,800 Paychex, Inc. 1,430
40,600 PeopleSoft, Inc. * 714
16,400 PerkinElmer, Inc. 226
21,800 PMC-Sierra, Inc. * 256
12,250 QLogic Corporation * 592
102,500 QUALCOMM Incorporated 3,664
18,549 Sabre Holdings Corporation 457
66,200 Sanmina-SCI Corporation * 418
19,875 Scientific-Atlanta, Inc. 474
63,100 Siebel Systems, Inc. * 602
107,400 Solectron Corporation * 402
414,975 Sun Microsystems, Inc. * 1,909
36,700 SunGard Data Systems Inc. * 951
19,275 Symantec Corporation * 845
29,950 Symbol Technologies, Inc. 390
11,300 Tektronix, Inc. * 244
53,500 Tellabs, Inc. * 351
23,800 Teradyne, Inc. * 412
225,000 Texas Instruments Incorporated 3,960
21,300 Thermo Electron Corporation * 448
42,300 Unisys Corporation * 519
53,476 VERITAS Software Corporation * 1,533
16,800 Waters Corporation * 489
95,600 Xerox Corporation * 1,012
43,800 Xilinx, Inc. * 1,109
76,875 Yahoo! Inc. * 2,518
-----------
188,638
-----------
See accompanying notes to financial statements.
15
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2003 (UNAUDITED)
SHARES VALUE (000'S)
- ------ -------------
MATERIALS - 2.7%
29,500 Air Products and Chemicals, Inc. $ 1,227
109,820 Alcoa Inc. 2,800
10,473 Allegheny Technologies Incorporated 69
7,400 Ball Corporation 337
6,900 Bemis Company, Inc. 323
7,600 Boise Cascade Corporation 182
118,398 Dow Chemical Company 3,666
129,200 E. I. du Pont de Nemours and Company 5,380
10,100 Eastman Chemical Company 320
33,800 Ecolab Inc. 865
16,600 Engelhard Corporation 411
18,900 Freeport-McMoRan Copper & Gold, Inc. - Class B 463
32,438 Georgia-Pacific Group 615
6,500 Great Lakes Chemical Corporation 133
14,200 Hercules Incorporated * 141
12,300 International Flavors & Fragrances Inc. 393
62,226 International Paper Company 2,223
13,600 Louisiana-Pacific Corporation * 147
25,925 MeadWestvaco Corporation 640
33,895 Monsanto Company 733
52,200 Newmont Mining Corporation 1,694
10,200 Nucor Corporation 498
20,600 Pactiv Corporation * 406
11,600 Phelps Dodge Corporation * 445
22,100 PPG Industries, Inc. 1,121
21,000 Praxair, Inc. 1,262
28,700 Rohm and Haas Company 891
10,900 Sealed Air Corporation * 520
9,300 Sigma-Aldrich Corporation 504
7,000 Temple-Inland Inc. 300
13,300 United States Steel Corporation 218
13,200 Vulcan Materials Company 489
28,400 Weyerhaeuser Company 1,534
11,200 Worthington Industries, Inc. 150
-----------
31,100
-----------
TELECOMMUNICATION SERVICES - 3.9%
40,400 ALLTEL Corporation 1,948
100,221 AT&T Corp. 1,929
351,809 AT&T Wireless Services Inc. * 2,888
241,700 BellSouth Corporation 6,437
18,600 CenturyTel, Inc. 648
36,600 Citizens Communications Company * 472
133,450 Nextel Communications, Inc. - Class A * 2,413
See accompanying notes to financial statements.
16
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2003 (UNAUDITED)
SHARES VALUE (000'S)
- ------ -------------
TELECOMMUNICATION SERVICES (CONTINUED)
220,364 Qwest Communications International Inc. * $ 1,053
431,356 SBC Communications Inc. 11,021
116,350 Sprint Corp. - FON Group 1,676
129,500 Sprint Corp. - PCS Group * 745
355,718 Verizon Communications Inc. 14,033
-----------
45,263
-----------
UTILITIES - 3.0%
70,700 AES Corporation * 449
16,400 Allegheny Energy, Inc. * 139
20,700 Ameren Corporation 913
50,500 American Electric Power Company, Inc. 1,506
49,200 Calpine Corporation * 325
39,500 CenterPoint Energy, Inc. 322
21,900 Cinergy Corp. 806
18,700 CMS Energy Corporation * 152
27,700 Consolidated Edison, Inc. 1,199
21,400 Constellation Energy Group 734
39,917 Dominion Resources, Inc. 2,566
21,800 DTE Energy Company 842
115,900 Duke Energy Corporation 2,312
48,200 Dynegy Inc. - Class A * 202
42,300 Edison International * 695
78,236 El Paso Corporation 632
28,800 Entergy Corporation 1,520
41,950 Exelon Corporation 2,509
38,580 FirstEnergy Corp. 1,483
23,700 FPL Group, Inc. 1,584
20,400 KeySpan Corporation 723
15,900 Kinder Morgan, Inc. 869
52,123 Mirant Corporation * 151
5,700 NICOR Inc. 212
33,653 NiSource Inc. 639
4,600 Peoples Energy Corporation 197
52,900 PG&E Corporation * 1,119
11,800 Pinnacle West Capital Corporation 442
21,400 PPL Corporation 920
30,753 Progress Energy, Inc. 1,350
28,800 Public Service Enterprise Group Incorporated 1,217
26,700 Sempra Energy 762
92,700 Southern Company 2,889
22,900 TECO Energy, Inc. 275
41,800 TXU Corporation 938
67,000 Williams Companies, Inc. 529
See accompanying notes to financial statements.
17
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2003 (UNAUDITED)
SHARES VALUE (000'S)
- ------ -------------
UTILITIES (CONTINUED)
51,735 Xcel Energy, Inc. $ 778
-----------
34,900
-----------
Total common stocks (cost $1,060,895) 1,168,998
-----------
CONTRACTS
PUT OPTIONS - 0.9%
3,706 On S&P 500 Index expiring August 16, 2003 at 875 1,482
3,706 On S&P 500 Index expiring September 20, 2003 at 875 3,373
4,585 On S&P 500 Index expiring September 20, 2003 at 900 5,777
-----------
Total put options (cost $9,795) 10,632
-----------
REPURCHASE AGREEMENT - 1.4% **
0.90% repurchase agreement with U. S. Bank, N. A.
dated June 30, 2003, due July 1, 2003
(repurchase proceeds $17,021) 17,021
-----------
Total common stocks, put options and repurchase
agreement - 102.5% 1,196,651
-----------
CALL OPTIONS - (2.2%) ***
(2,861) On S&P 500 Index expiring July 19, 2003 at 950 (8,969)
(4,429) On S&P 500 Index expiring July 19, 2003 at 975 (6,621)
(3,270) On S&P 500 Index expiring August 16, 2003 at 975 (7,930)
(1,437) On S&P 500 Index expiring August 16, 2003 at 995 (2,156)
-----------
Total call options outstanding (premiums received
$43,601) (25,676)
-----------
OTHER ASSETS AND LIABILITIES, NET - (0.3%) (3,935)
-----------
NET ASSETS - 100.0% $ 1,167,040
===========
* Non-income producing.
** Repurchase agreement fully collateralized by U. S.
Government Agency obligations.
*** The aggregate value of investments that covers outstanding
call options is $1,168,998,000.
See accompanying notes to financial statements.
18
GATEWAY FUND
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 2003 (UNAUDITED)
(000's)
ASSETS:
Common stocks, at value (cost $1,060,895) $ 1,168,998
Put options, at value (cost $9,795) 10,632
Repurchase agreement 17,021
Receivable for Fund shares sold 1,920
Dividends and interest receivable 1,466
Other assets 58
-----------
Total assets 1,200,095
-----------
LIABILITIES:
Call options outstanding, at value (premiums received $43,601) 25,676
Payable for Fund shares redeemed 6,960
Accrued distribution expenses 323
Accrued investment advisory and management fees 52
Other accrued expenses and liabilities 44
-----------
Total liabilities 33,055
-----------
NET ASSETS $ 1,167,040
===========
NET ASSETS CONSIST OF:
Paid-in capital $ 1,153,371
Undistributed net investment income 4,780
Accumulated net realized loss on investment transactions (117,976)
Net unrealized appreciation on investments 126,865
-----------
Net assets $ 1,167,040
===========
FUND SHARES OUTSTANDING
(unlimited number of shares authorized, no par value) 53,108
===========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE $ 21.97
===========
See accompanying notes to financial statements.
19
GATEWAY FUND
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
(000's)
INVESTMENT INCOME:
Dividends $ 9,798
Interest 237
---------
Total investment income 10,035
---------
EXPENSES:
Investment advisory and management fees 3,248
Distribution expenses 1,846
Standard & Poor's licensing fees 50
Trustees' fees 42
Professional fees 40
Custodian fees 30
Insurance expense 23
Registration fees 21
Other expenses 24
---------
Total expenses 5,324
---------
NET INVESTMENT INCOME 4,711
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
REALIZED LOSS ON INVESTMENT TRANSACTIONS:
Common stocks (15,222)
Put options expired and closed (40,369)
Call options expired and closed (29,108)
---------
Net realized loss on investment transactions (84,699)
---------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON INVESTMENTS:
Common stocks 135,105
Put options 6,951
Call options 2,218
---------
Net change in unrealized appreciation/depreciation on investments 144,274
---------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 59,575
---------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 64,286
=========
See accompanying notes to financial statements.
20
GATEWAY FUND
STATEMENTS OF CHANGES IN NET ASSETS
(000's)
Six Months Year
Ended Ended
June 30, 2003 December 31,
(Unaudited) 2002
------------- ------------
FROM OPERATIONS:
Net investment income $ 4,711 $ 7,842
Net realized gain (loss) on investment transactions (84,699) 45,567
Net change in unrealized appreciation/depreciation on investments 144,274 (124,164)
----------- -----------
Net increase (decrease) in net assets from operations 64,286 (70,755)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- (7,816)
----------- -----------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 205,933 364,690
Net asset value of shares issued in reinvestment of
distributions to shareholders -- 6,936
Payments for shares redeemed (171,627) (509,738)
----------- -----------
Net increase (decrease) in net assets from Fund shares transactions 34,306 (138,112)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS 98,592 (216,683)
NET ASSETS:
Beginning of period 1,068,448 1,285,131
----------- -----------
End of period $ 1,167,040 $ 1,068,448
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME $ 4,780 $ 69
=========== ===========
FUND SHARE TRANSACTIONS:
Shares sold 9,713 17,144
Shares issued in reinvestment of distributions to shareholders -- 334
Shares redeemed (8,073) (24,465)
----------- -----------
Net increase (decrease) in Fund shares outstanding 1,640 (6,987)
Shares outstanding, beginning of period 51,468 58,455
----------- -----------
Shares outstanding, end of period 53,108 51,468
=========== ===========
See accompanying notes to financial statements.
21
GATEWAY FUND
FINANCIAL HIGHLIGHTS - PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD
Six Months
Ended
June 30, Year Ended December 31,
2003 --------------------------------------------------------------------
(Unaudited) 2002 2001 2000 1999 1998
----------------- ------------- ------------- ------------ ----------- -----------
BEGINNING NET ASSET VALUE $ 20.76 $ 21.98 $ 22.92 $ 23.67 $ 21.02 $ 18.85
------------- ----------- ----------- ----------- ---------- ----------
INVESTMENT OPERATIONS:
Net investment income 0.09 0.15 0.11 0.08 0.07 0.12
Net gain (loss) on investments 1.12 (1.22) (0.92) 1.49 2.65 2.18
------------- ----------- ----------- ----------- ---------- ----------
Total from investment operations 1.21 (1.07) (0.81) 1.57 2.72 2.30
------------- ----------- ----------- ----------- ---------- ----------
DISTRIBUTIONS:
Dividends from net investment income -- (0.15) (0.11) (0.08) (0.07) (0.12)
Distributions from net realized gain -- -- (0.02) (2.24) -- (0.01)
------------- ----------- ----------- ----------- ---------- ----------
Total distributions -- (0.15) (0.13) (2.32) (0.07) (0.13)
------------- ----------- ----------- ----------- ---------- ----------
ENDING NET ASSET VALUE $ 21.97 $ 20.76 $ 21.98 $ 22.92 $ 23.67 $ 21.02
============= =========== =========== =========== ========== ==========
TOTAL RETURN 5.83%(1) (4.86%) (3.53%) 6.61% 12.97% 12.26%
ENDING NET ASSETS (000'S) $ 1,167,040 $ 1,068,448 $ 1,285,131 $ 1,491,052 $ 922,128 $ 464,200
AVERAGE NET ASSETS RATIOS:
Total expenses 0.97%(2) 0.97% 0.97% 0.98% 0.98% 0.99%
Net investment income 0.85%(2) 0.66% 0.43% 0.33% 0.37% 0.66%
PORTFOLIO TURNOVER RATE 10%(2) 13% 18% 22% 11% 12%
(1) Unannualized.
(2) Annualized.
See accompanying notes to financial statements.
22
GATEWAY FUND
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2003 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Gateway Trust (the Trust) is a family of two 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 index 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 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 values its portfolio as of the close of the
regular session of trading on the New York Stock Exchange (normally 4:00 P.M.,
Eastern time). Securities, other than option contracts, traded on a national
stock exchange are valued at the last reported sales price on the primary
exchange on which the security is traded. Securities traded in the
over-the-counter market and which are quoted by NASDAQ are valued at the NASDAQ
Official Closing Price. Option contracts (both purchased and written) are valued
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
are 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.
OPTION TRANSACTIONS - The Fund purchases index put options and writes (sells)
index call options. When the Fund writes an index call option, an amount equal
to the net premium received (the premium less commission) is recorded as a
liability and is subsequently valued until the option expires or the Fund enters
into a closing purchase transaction. When an index call option expires on its
stipulated expiration date or the Fund enters into a closing purchase
transaction, the difference between the net premium received and any amount paid
at expiration or on effecting a closing purchase transaction, including
commission, is treated as a realized gain or, if the net premium received is
less than the amount paid, as a realized loss. The Fund, as writer of an index
call option, bears the risk of an unfavorable change in the market value of the
index underlying the written option.
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.
23
GATEWAY FUND
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2003 (UNAUDITED)
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 December 31, 2002, on a tax basis, the Fund had undistributed ordinary income
of $69,000 and a net capital loss carryforward expiring December 31, 2010 of
$2,865,000. The difference between the book basis and tax basis of distributable
earnings resulted from the tax deferral of losses on wash sales and the tax
recognition of net unrealized appreciation on open option contracts at December
31, 2002. There were no differences between the book basis and tax basis of
distributions paid for the year ended December 31, 2002.
At June 30, 2003, based on a $1,047,344,000 federal tax cost of common stocks
and options, gross unrealized appreciation totaled $191,505,000 and gross
unrealized depreciation totaled $84,895,000.
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
accounting principles generally accepted in the United States 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 all 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 Funds'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 this level.
For the six months ended June 30, 2003, the Fund paid $111,000 in commissions to
broker/dealer subsidiaries of Deutsche Bank AG, which may be deemed to be
affiliates of the Adviser.
24
GATEWAY FUND
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2003 (UNAUDITED)
3. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2003, cost of purchases of investment
securities (excluding short-term investments) totaled $102,128,000 and proceeds
from sales totaled $52,426,000.
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 portfolio
value. 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, 2003, transactions in written options were as follows:
Contracts Premiums(000's)
--------- ---------------
Outstanding at December 31, 2002 11,361 $ 24,888
Options written 44,753 110,715
Options terminated in closing
purchase transactions (37,088) (81,168)
Options expired (7,029) (10,834)
------- ---------
Outstanding at June 30, 2003 11,997 $ 43,601
======= =========
4. BANK LINE OF CREDIT
The Fund has an uncommitted $55 million bank line of credit to be used as a
temporary liquidity source for meeting redemption requests. Borrowings under
this arrangement, expiring October 31, 2003, bear interest at the bank's prime
rate minus 0.50%. There are no fees associated with maintaining this facility.
During the six months ended June 30, 2003, there were no borrowings on this line
of credit.
25
WEB SITE:
For general information regarding the Gateway Fund,
visit us at www.gatewayfund.com
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
[CINCINNATI FUND(R) LOGO]
[CINCINNATI FUND(R) LOGO] SEMI-ANNUAL REPORT
P. O. BOX 5211 CINCINNATI, OHIO 45201-5211 JUNE 30, 2003
(800) 354-5525 (UNAUDITED)
CINCINNATI FUND(R)
Total Returns - June 30, 2003 (Unaudited)
Average Annual Total Return
--------------------------------------------- 6/30/03
One Three Five Since Inception Price
Year Years Years on 11/7/94 Per Share
---- ----- ----- --------------- ---------
CINCINNATI FUND(R) (6.87%) (0.81%) (1.75%) 8.70% $ 16.26
S&P 500 Index 0.25% (11.19%) (1.61%)
Russell 2000 Index (1.64%) (3.30%) 0.97%
Cumulative Total Return
-----------------------------------------------
One Three Five Since Inception
Year Years Years on 11/7/94
---- ----- ----- ---------------
CINCINNATI FUND(R) (6.87%) (2.40%) (8.46%) 105.75%
S&P 500 Index 0.25% (29.96%) (7.79%)
Russell 2000 Index (1.64%) (9.58%) 4.92%
Data sources throughout this report: Gateway Investment Advisers, L.P. and
Thomson Financial.
Performance data throughout this report represents past performance. The total
return figures assume the reinvestment of distributions, but do not reflect the
deduction of taxes paid on distributions or on the redemption of your shares.
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(R)
Letter to Shareholders
Dear Shareholder:
It appears the bear market is finally over. The modest rally which began in late
March of this year blossomed in April as the war in Iraq dropped off the front
pages. With global uncertainty diminishing, investors began to focus on the
economic impact of a continued easing of monetary policy by the Federal Reserve
Board and increased fiscal stimulus via the tax cut.
For the first six months of 2003, the S&P 500 Index produced a total return of
11.75%. The rally off the March bottom was led predominately by technology
shares, as evidenced by the terrific 21.51% total return of the NASDAQ Composite
Index. Lacking many of those large-capitalization technology stocks, the
Cincinnati Fund(R) produced a total return of 5.38% for the first half of this
year.
However, the small representation of technology in the portfolio certainly
helped insulate the Cincinnati Fund from the damage most investors incurred
during the great bear market which started near the beginning of 2000. The
Greater Cincinnati Area's mix of "old economy" manufacturing firms and financial
companies led to its relatively strong performance during those difficult times.
For the three and one-half years ended June 30, 2003, the Cincinnati Fund
declined by 7.57%. This compares to the S&P 500 Index declining by 30.26% and
the NASDAQ Composite Index dropping by an amazing 60.12%. The Cincinnati Fund's
relative steadiness in performance, as compared to these indexes, is evident in
the following table:
FIRST HALF
2000 2001 2002 2003
---- ---- ---- ----
Cincinnati Fund(R) 2.92% (1.79%) (13.22%) 5.38%
S&P 500 Index (9.10%) (11.88%) (22.09%) 11.75%
NASDAQ Composite (39.29%) (21.05%) (31.53%) 21.51%
Performance data represents past performance. The total return figures shown
assume the reinvestment of distributions, but do not reflect the deduction of
taxes paid on distributions or on the redemption of your shares. 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.
2
CINCINNATI FUND(R)
Letter to Shareholders
TOP STOCK PERFORMER
The Cincinnati Fund's best-performing stock in the first six months of 2003 was
Cincinnati Bell Inc. One of Greater Cincinnati's largest employers, this local
telephone company certainly has had a volatile existence during the past five
years.
In December 1998, the company spun off its two most profitable business units,
Matrixx Marketing and Cincinnati Bell Information Systems, to form the newly
created Convergys Corporation (also owned by the Fund as of June 30, 2003).
Cincinnati Bell's strategic goal was to focus on two areas of the
telecommunication industry with potentially faster growth -- internet services
and fiber optic networks. The company's decision to buy or build a national
fiber optic network was driven by a desire to transform Cincinnati Bell from a
regional telephone company into a national leader in providing long distance and
data transmission to business customers.
In July 1999, the company announced its acquisition of IXC Communications, an
Austin, Texas company, which was in the process of building an 18,000-mile fiber
optic network across the United States. The $3.2 billion purchase price for IXC
was financed significantly with debt totaling $2.5 billion. Cincinnati Bell then
changed its name to Broadwing, Inc. in an effort to identify itself to the
investor community as a more progressive company. Unfortunately, the strategic
focus on internet services and the broadband network proved to be a failure. The
huge overcapacity in broadband services pushed many companies in the industry
into bankruptcy.
Recognizing a change was necessary, Broadwing decided to go back to its roots by
focusing on its core business -- providing local exchange and wireless telephone
services to residential and business customers located predominantly in the
Greater Cincinnati Area. As a result, Broadwing sold its national broadband
network late last year and changed its name back to Cincinnati Bell in May 2003.
Due mainly to its unsuccessful venture into broadband, the company's stock fell
by 77% from the end of 1998 to the beginning of this year. However, even with
company debt still hovering around $2.5 billion, investors are clearly excited
about Cincinnati Bell's move back to its traditional business, pushing its stock
up 90.34% in the first six months of 2003.
- ------------------------------------
TOP FIVE PERFORMERS
JANUARY 1, 2003 - JUNE 30, 2003
(PRICE APPRECIATION ONLY)
- ------------------------------------
Cincinnati Bell Inc. 90.34%
NS Group, Inc. 49.54%
Omnicare, Inc. 41.80%
Meridian Bioscience, Inc. 32.41%
Multi-Color Corporation 30.54%
- -----------------------------------------
TOP FIVE HOLDINGS
AS OF JUNE 30, 2003
(AS A PERCERTAGE OF NET ASSETS)
- -----------------------------------------
Procter & Gamble Company 7.30%
Fifth Third Bancorp 6.62%
U. S. Bancorp 5.86%
E. W. Scripps Company - Class A 5.71%
Cinergy Corp. 5.66%
3
CINCINNATI FUND(R)
Letter to Shareholders
As shown on the graph below, the Cincinnati Fund is still dominated by the
financial sector, representing 30.3% of the Fund's net asssets as of June 30,
2003.
[PIE CHART]
Health Care 5.6%
Telecommunication Services 1.4%
Industrials 16.5%
Materials 0.7%
Consumer Discretionary 18.8%
Utilities 5.7%
Cash and Other 1.3%
Information Technology 5.3%
Consumer Staples 12.8%
Energy 1.6%
Financials 30.3%
As always, we appreciate your support and continued confidence.
/s/ Walter G. Sall
Walter G. Sall
Chairman
/s/ Patrick Rogers
Patrick Rogers, CFA
Portfolio Manager
4
CINCINNATI FUND(R)
Letter to Shareholders
GROWTH OF A $10,000 INVESTMENT
NOVEMBER 7, 1994 (INCEPTION DATE) - JUNE 30, 2003
[PERFORMANCE GRAPH]
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
- -----------------------------------------------------------------
$21,745.42 $31,757.59 $18,074.38
- -----------------------------------------------------------------
$21,801.09 $32,403.22 $19,153.42
- -----------------------------------------------------------------
$22,256.73 $34,311.77 $21,321.59
- -----------------------------------------------------------------
$21,212.89 $32,589.32 $20,978.31
- -----------------------------------------------------------------
$19,653.74 $31,973.38 $24,441.83
- -----------------------------------------------------------------
$21,707.56 $35,100.38 $22,831.11
- -----------------------------------------------------------------
$21,785.70 $34,043.86 $21,456.68
- -----------------------------------------------------------------
$21,739.95 $33,345.96 $20,205.76
- -----------------------------------------------------------------
$21,079.06 $34,169.60 $21,967.70
- -----------------------------------------------------------------
$20,967.34 $33,636.56 $21,260.34
- -----------------------------------------------------------------
$22,323.93 $35,725.39 $22,882.50
- -----------------------------------------------------------------
$22,256.96 $33,839.09 $22,209.76
- -----------------------------------------------------------------
$22,021.03 $33,696.96 $21,219.20
- -----------------------------------------------------------------
$21,582.81 $31,041.64 $19,039.99
- -----------------------------------------------------------------
$22,905.84 $31,193.75 $20,675.52
- -----------------------------------------------------------------
$23,212.78 $32,301.12 $21,752.72
- -----------------------------------------------------------------
$22,353.91 $29,358.49 $20,325.74
- -----------------------------------------------------------------
$21,629.64 $27,500.10 $19,331.81
- -----------------------------------------------------------------
$22,538.08 $29,634.11 $20,843.56
- -----------------------------------------------------------------
$23,937.70 $29,832.66 $21,356.31
- -----------------------------------------------------------------
$23,803.65 $29,107.72 $22,093.10
- -----------------------------------------------------------------
$23,827.45 $28,822.47 $20,897.87
- -----------------------------------------------------------------
$22,795.72 $27,021.06 $20,222.87
- -----------------------------------------------------------------
$21,174.95 $24,840.46 $17,500.87
- -----------------------------------------------------------------
$20,217.84 $25,314.92 $18,524.67
- -----------------------------------------------------------------
$21,629.04 $27,256.57 $19,958.48
- -----------------------------------------------------------------
$22,496.37 $27,496.43 $21,189.92
- -----------------------------------------------------------------
$22,206.17 $27,094.98 $20,969.54
- -----------------------------------------------------------------
$22,434.89 $26,572.05 $20,394.97
- -----------------------------------------------------------------
$23,751.82 $27,571.16 $22,034.73
- -----------------------------------------------------------------
$23,687.69 $25,900.34 $22,235.25
- -----------------------------------------------------------------
$23,131.03 $25,711.27 $21,248.00
- -----------------------------------------------------------------
$22,092.44 $23,880.63 $20,194.10
- -----------------------------------------------------------------
$20,181.45 $22,020.33 $17,144.79
- -----------------------------------------------------------------
$20,155.21 $22,163.46 $17,101.93
- -----------------------------------------------------------------
$18,321.09 $19,756.51 $15,874.01
- -----------------------------------------------------------------
$19,182.18 $21,493.10 $16,383.57
- -----------------------------------------------------------------
$19,980.16 $22,756.90 $17,844.98
- -----------------------------------------------------------------
$19,524.61 $21,421.07 $16,851.02
- -----------------------------------------------------------------
$18,677.24 $20,861.98 $16,384.24
- -----------------------------------------------------------------
$18,171.09 $20,549.05 $15,889.44
- -----------------------------------------------------------------
$17,931.23 $20,748.38 $16,094.41
- -----------------------------------------------------------------
$19,172.07 $22,455.97 $17,620.16
- -----------------------------------------------------------------
$20,525.62 $23,637.15 $19,510.81
- -----------------------------------------------------------------
$20,576.93 $23,939.71 $19,863.95
- -----------------------------------------------------------------
- ---------------------------------
CINCINNATI FUND
AVERAGE ANNUAL TOTAL RETURNS
AS OF JUNE 30, 2003
- ---------------------------------
One Year (6.87%)
Five Years (1.75%)
Life of Fund 8.70%
Performance data throughout this report represents past performance. The average
annual total return figures assume the reinvestment of distributions, but do not
reflect the deduction of taxes paid on distributions or on the redemption of
your shares. 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(R)
Portfolio of Investments - June 30, 2003 (Unaudited)
SHARES VALUE
- ------ -----
COMMON STOCKS - 98.7%
CONSUMER DISCRETIONARY - 18.8%
7,422 Clear Channel Communications, Inc. * $ 314,619
5,900 E. W. Scripps Company - Class A 523,448
5,000 Federated Department Stores, Inc. 184,250
7,058 Ford Motor Company 77,567
6,490 Frisch's Restaurants, Inc. 116,820
2,300 Gannett Co., Inc. 176,663
1,600 General Motors Corporation 57,600
5,700 Harte-Hanks, Inc. 108,300
15,025 Pomeroy IT Solutions, Inc. * 166,177
----------
1,725,444
----------
CONSUMER STAPLES - 12.8%
200 J. M. Smucker Company 7,978
29,900 Kroger Co. * 498,732
7,500 Procter & Gamble Company 668,850
----------
1,175,560
----------
ENERGY - 1.6%
4,700 Ashland Inc. 144,196
----------
FINANCIALS - 30.3%
8,300 American Financial Group, Inc. 189,240
10,529 Cincinnati Financial Corporation 390,521
11,300 Duke Realty Corporation 311,315
10,572 Fifth Third Bancorp 606,198
2,046 First Financial Bancorp 32,736
2,300 Great American Financial Resources, Inc. 30,153
3,804 KeyCorp 96,127
11,200 Midland Company 248,752
3,000 Ohio Casualty Corporation * 39,540
1,700 PNC Financial Services Group, Inc. 82,977
8,125 Provident Financial Group, Inc. 208,244
21,900 U. S. Bancorp 536,550
----------
2,772,353
----------
HEALTH CARE - 5.6%
5,100 Johnson & Johnson 263,670
4,700 Kendle International Inc. * 29,140
9,522 Meridian Bioscience, Inc. 86,745
4,000 Omnicare, Inc. 135,160
----------
514,715
----------
See accompanying notes to financial statements.
6
CINCINNATI FUND(R)
Portfolio of Investments - June 30, 2003 (Unaudited)
SHARES VALUE
- ------ -----
INDUSTRIALS - 16.5%
11,600 Cintas Corporation $ 411,104
2,700 Delta Air Lines, Inc. 39,636
15,900 General Electric Company 456,012
4,100 Milacron Inc. 20,049
6,000 Multi-Color Corporation * 132,600
11,800 Roto-Rooter, Inc. 450,052
----------
1,509,453
----------
INFORMATION TECHNOLOGY - 5.3%
13,200 Convergys Corporation * 211,200
24,550 LSI Industries Inc. 272,505
----------
483,705
----------
MATERIALS - 0.7%
2,000 AK Steel Holding Corporation * 7,240
6,000 NS Group, Inc. * 58,500
----------
65,740
----------
TELECOMMUNICATION SERVICES - 1.4%
260 AT&T Corp. 5,005
18,700 Cincinnati Bell Inc. * 125,290
----------
130,295
----------
UTILITIES - 5.7%
14,100 Cinergy Corp. 518,739
----------
Total common stocks (cost $5,659,831) 9,040,200
OTHER ASSETS IN EXCESS OF LIABILITIES - 1.3% 122,908
----------
NET ASSETS - 100.0% $9,163,108
==========
* Non-income producing.
See accompanying notes to financial statements.
7
CINCINNATI FUND(R)
Statement of Assets and Liabilities - June 30, 2003 (Unaudited)
ASSETS:
Common stocks, at value (cost $5,659,831) $9,040,200
Cash 110,767
Dividends receivable 15,857
Other assets 5,886
----------
Total assets 9,172,710
----------
LIABILITIES:
Payable for Fund shares redeemed 5,079
Other accrued expenses and liabilities 4,523
----------
Total liabilities 9,602
----------
NET ASSETS $9,163,108
==========
NET ASSETS CONSIST OF:
Paid-in capital $5,718,706
Undistributed net investment income 24,694
Accumulated net realized gain on investment transactions 39,339
Net unrealized appreciation on investments 3,380,369
----------
Net assets $9,163,108
==========
FUND SHARES OUTSTANDING
(unlimited number of shares authorized, no par value) 563,658
==========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE $ 16.26
==========
See accompanying notes to financial statements.
8
CINCINNATI FUND(R)
Statement of Operations - For the Six Months Ended June 30, 2003 (Unaudited)
INVESTMENT INCOME:
Dividends $ 92,900
Interest 643
---------
Total investment income 93,543
---------
EXPENSES:
Transfer agent and accounting fees 39,000
Investment advisory and management fees 21,542
Reports to shareholders 6,827
Professional fees 5,863
Trustees' fees 5,340
Registration fees 4,164
Custodian fees 3,724
Insurance expense 1,642
Other expenses 2,450
---------
Total expenses 90,552
Investment advisory and management fees waived (15,156)
---------
Net expenses 75,396
---------
NET INVESTMENT INCOME 18,147
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment transactions 49,482
Net increase in unrealized appreciation on investments 385,771
---------
Net realized and unrealized gain on investments 435,253
---------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 453,400
=========
See accompanying notes to financial statements.
9
CINCINNATI FUND(R)
Statements of Changes in Net Assets
Six Months Year
Ended Ended
June 30, 2003 December 31,
(Unaudited) 2002
------------- ------------
FROM OPERATIONS:
Net investment income $ 18,147 $ 6,547
Net realized gain (loss) on investment transactions 49,482 (10,143)
Net increase (decrease) in unrealized appreciation
on investments 385,771 (1,390,702)
---------- -----------
Net increase (decrease) in net assets from operations 453,400 (1,394,298)
---------- -----------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 87,279 479,024
Payments for shares redeemed (394,479) (946,189)
---------- -----------
Net decrease in net assets from Fund shares transactions (307,200) (467,165)
---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS 146,200 (1,861,463)
NET ASSETS:
Beginning of period 9,016,908 10,878,371
---------- -----------
End of period $9,163,108 $ 9,016,908
========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME $ 24,694 $ 6,547
========== ===========
FUND SHARE TRANSACTIONS:
Shares sold 5,796 27,526
Shares redeemed (26,523) (55,144)
---------- -----------
Net decrease in Fund shares outstanding (20,727) (27,618)
Shares outstanding, beginning of period 584,385 612,003
---------- -----------
Shares outstanding, end of period 563,658 584,385
========== ===========
See accompanying notes to financial statements.
10
CINCINNATI FUND(R)
Financial Highlights - Per Share Data For a Share Outstanding
Six Months
Ended
June 30, Year Ended December 31,
2003 --------------------------------------------------
(Unaudited) 2002 2001 2000 1999 1998
----------- ------- ------- ------- ------- -------
BEGINNING NET ASSET VALUE $ 15.43 $ 17.78 $ 18.66 $ 19.84 $ 20.84 $ 18.98
------- ------- ------- ------- ------- -------
INVESTMENTS OPERATIONS:
Net investment income 0.03 0.01 0.04 0.12 0.06
Net gain (loss) on investments 0.80 (2.36) (0.33) 0.53 (0.98) 2.20
------- ------- ------- ------- ------- -------
Total from investment operations 0.83 (2.35) (0.33) 0.57 (0.86) 2.26
------- ------- ------- ------- ------- -------
DISTRIBUTIONS:
Dividends from net investment income -- -- (0.04) (0.12) (0.06)
Distributions from net realized gain -- -- (0.55) (1.71) (0.02) (0.34)
------- ------- ------- ------- ------- -------
Total distributions -- -- (0.55) (1.75) (0.14) (0.40)
------- ------- ------- ------- ------- -------
ENDING NET ASSET VALUE $ 16.26 $ 15.43 $ 17.78 $ 18.66 $ 19.84 $ 20.84
======= ======= ======= ======= ======= =======
TOTAL RETURN 5.38%(2) (13.22%) (1.79%) 2.92% (4.13%) 11.89%
ENDING NET ASSETS (000'S) $ 9,163 $ 9,017 $10,878 $11,882 $19,880 $26,544
AVERAGE NET ASSETS RATIOS:
Net expenses (1) 1.75%(3) 1.75% 1.77% 1.44% 1.28% 1.37%
Net investment income 0.42%(3) 0.07% 0.00% 0.17% 0.49% 0.30%
PORTFOLIO TURNOVER RATE 5%(3) 0% 6% 0% 22% 8%
(1) Absent investment advisory and management fees waived by the Adviser, the
ratios of expenses to average net assets would have been 2.10% (unaudited)
for the six months ended June 30, 2003 and 1.90% and 1.80% for the years
ended December 31, 2002 and 2001, respectively.
(2) Unannualized.
(3) Annualized.
See accompanying notes to financial statements.
11
CINCINNATI FUND(R)
Notes to Financial Statements - June 30, 2003 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
The Gateway Trust (the Trust) is a family of two diversified mutual funds. The
financial statements of the Cincinnati Fund (the Fund) are included in this
report. The investment objective of the Fund is capital appreciation by
investing in the stock of companies with an important business presence in the
Greater Cincinnati Area. The Fund is more susceptible to factors adversely
affecting companies with an important business presence in the Greater
Cincinnati Area than a fund that is not concentrated in the same geographic
region. 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 values its portfolio securities as of the close
of the regular session of trading on the New York Stock Exchange (normally 4:00
P.M., Eastern time). Securities traded on a national stock exchange are valued
at the last reported sales price on the primary exchange on which the security
is traded. Securities traded in the over-the-counter market and which are quoted
by NASDAQ are valued at the NASDAQ Official Closing Price. 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
are 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 December 31, 2002, on a tax basis, the Fund had undistributed ordinary income
of $6,547 and a net capital loss carryforward expiring December 31, 2010 of
$10,143. There were no differences between the book basis and tax basis of
either distributable earnings as of December 31, 2002, or distributions paid for
the year ended December 31, 2002.
At June 30, 2003, based on a $5,659,831 federal income tax cost of common
stocks, gross unrealized appreciation totaled $3,680,748 and gross unrealized
depreciation totaled $300,379.
12
CINCINNATI FUND(R)
Notes to Financial Statements - June 30, 2003 (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
accounting principles generally accepted in the United States 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.
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 fee as necessary to limit the Fund's expenses to this level.
The Adviser further committed through December 31, 2003 to waive some or all of
its fee if the Fund's expense ratio exceeds 1.75%. 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, 2003, the Adviser waived
investment advisory and management fees of $15,156.
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.
3. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2003, cost of purchases of investment
securities (exlcuding short-term investments) totaled $195,200 and proceeds from
sales of investment securities totaled $242,387.
4. BANK LINE OF CREDIT
The Fund has an uncommitted $475,000 bank line of credit to be used as a
temporary liquidity source for meeting redemption requests. Borrowings under
this arrangement, which expires October 31, 2003, bear interest at the bank's
prime rate minus 0.50%. There ere no fees associated with maintaining this
facility. During the six months ended June 30, 2003, there were no borrowings on
this line of credit.
13
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
ITEM 2. CODE OF ETHICS.
Applicable to Annual Reports only.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Applicable to Annual Reports only.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Applicable to Annual Reports only.
ITEM 5. AUDIT COMMITTEE OF LISTED COMPANIES.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. PROXY VOTING POLICY AND PROCEDURES FOR CLOSED END FUND.
Not applicable
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) Based on an evaluation of the registrant's disclosure controls and
procedures as of September 2, 2003, the disclosure controls and procedures are
reasonably designed to ensure that the information required in filings of Form
N-CSR is recorded, processed, summarized, and reported on a timely basis.
(b) There were no significant changes in the registrant's internal control over
financial reporting that occurred during the registrant's last fiscal half-year
that have materially affected, or are reasonably likely to materially affect the
registrant's internal control over financial reporting.
ITEM 10. EXHIBITS.
(a)(1) Applicable to Annual Reports only.
(a)(2) Exhibit 99.CERT Certifications required by Item 10(a)(2) of Form N-CSR
are filed herewith.
(b) Certification required by Item 10(b) of Form N-CSR is filed
herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized. The Gateway
Trust
By /s/ Walter G. Sall
-----------------------------------
Walter G. Sall, Chairman
Date September 2, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ Walter G. Sall
-----------------------------------
Walter G. Sall, Chairman
Date September 2, 2003
By /s/ Gary H. Goldschmidt
-----------------------------------
Gary H. Goldschmidt
Vice President and Treasurer
Date September 2, 2003