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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, 2004
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.
GATEWAY
FUND
SEMI-ANNUAL REPORT
JUNE 30, 2004
(UNAUDITED)
THE
GATEWAY
TRUST
P. O. BOX 5211
CINCINNATI, OH 45201-5211
800.354.6339
GATEWAY FUND
TOTAL RETURNS - JUNE 30, 2004 (UNAUDITED)
Average Annual Total Return
-------------------------------------------------- 6/30/04
One Three Five Ten Since Inception Price
Year Years Years Years on 12/7/77 Per Share
----- ----- ----- ----- --------------- ---------
GATEWAY FUND 8.44% 2.20% 3.31% 7.70% 9.22% $23.65
Lehman Brothers U. S. Intermediate
Government/Credit Bond Index (0.07%) 6.21% 6.75% 6.90%
S&P 500 Index 19.10% (0.69%) (2.20%) 11.82%
Cumulative Total Return
--------------------------------------------------
One Three Five Ten Since Inception
Year Years Years Years on 12/7/77
------ ------ ------ ------ ---------------
GATEWAY FUND 8.44% 6.74% 17.68% 109.94% 940.85%
Lehman Brothers U. S. Intermediate
Government/Credit Bond Index (0.07%) 19.80% 38.64% 94.83%
S&P 500 Index 19.10% (2.07%) (10.54%) 205.64%
Data sources throughout this report: Gateway Investment Advisers, L.P., Thomson
Financial and Lehman Brothers, Inc.
Performance data throughout this report represents past performance and is no
guarantee of future results. 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.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities, and information regarding how
the Fund voted those proxies during the twelve-month period ended June 30, 2004,
are available without charge: (i) upon request by calling the Fund at
800.354.6339, and (ii) from the Fund documents filed with the Securities and
Exchange Commission ("SEC") on the SEC's website at www.sec.gov.
1
GATEWAY FUND
LETTER TO SHAREHOLDERS
Dear Shareholder:
The uninspired equity markets that dominated the end of 2003 continued during
the first six months of 2004. Corporate earnings news and economic indicators
were generally positive. However, geopolitical attention remained focused on the
war on terrorism, and concerns over the impact of rising oil prices on the
domestic economy were prevalent.
Bond markets became tense in anticipation of rate increases by the Federal
Reserve only uncertainty for bond investors was the speed and timing of the rate
increases.
YEAR-TO-DATE PERFORMANCE
Option premiums generally remained at low levels, resulting in returns for the
Gateway Fund below historical averages. Still, the Fund earned 2.83% for the
first half of the year, ahead of money markets, most fixed income instruments
and several equity market indexes such as the Dow Jones Industrial Average and
the NASDAQ Composite Index. In fact, the S&P 500 Index, which has more than
double the volatility of the Fund, earned 3.44% for the first six months of the
year, only 61 basis points more than the Gateway Fund. The Lehman Brothers U. S.
Intermediate Government/Credit Bond Index declined 0.11%.
JANUARY RECAP
The year 2004 began with the economy growing rapidly and corporate profits up
handsomely. At the Federal Reserve Board meeting held on January 21, Chairman
Alan Greenspan issued a subtle warning of interest rate increases. While the
Board's policy toward interest rates remained unchanged, language describing a
long period of low interest rates was dropped from the report. The financial
markets declined on the news (or lack thereof) but recovered some poise by
month-end with the S&P 500 Index delivering a total return of 1.84% for the
month of January. Bonds also reacted badly to the news as sellers reversed an
upward course set earlier in January. Still, the Lehman Brothers U. S.
Intermediate Government/Credit Bond Index increased by 0.66%. As interest in
financial markets waned, both volatility and option prices declined. The Gateway
Fund delivered a total return of 0.39% for the month of January.
FEBRUARY RECAP
The equity market slowed its advance in February, losing a good bit of both
momentum and volatility. Nevertheless, Gateway Fund returns improved over
January, earning 0.69% for the month of February. Market volatility and option
premiums continued at modest levels, although not at historic lows. For the
month, the S&P 500 Index saw continued good news on the earnings front while
investors kept a wary eye on labor markets and pronouncements by the Federal
Reserve Board. The S&P 500 Index returned 1.39% for the month. Calming words on
interest rate hikes caused bonds to rally. The Lehman Brothers U. S.
Intermediate Government/Credit Bond Index returned 1.02% for the month. February
saw both bond and equity index returns move in the direction of historic
averages. The markets showed little tendency in February to break new ground, as
the tone seemed more consistent with normalization.
2
GATEWAY FUND
LETTER TO SHAREHOLDERS
MARCH RECAP
As international events (e.g., the bombing and subsequent election in Spain)
collided with an apparent lack of domestic job growth in March, investors paused
to interpret the new reality. February's caution turned to selling and the S&P
500 Index declined by 1.51%. The Gateway Fund produced a total return of 0.13%
in March as accumulated premiums from index call options offset the decline in
its stock portfolio. Bonds rallied as the stock market's decline was the bond
market's good fortune. The Lehman Brothers U. S. Intermediate Government/Credit
Bond Index posted a total return of 0.78% for March. Investor anxiety translated
into higher volatility for stock prices and, concurrently, higher prices for
options.
APRIL RECAP
Capital markets declined in April across the asset allocation spectrum from
fixed income to equity investments. As is typical in times of market stress,
Gateway Fund investors suffered significantly less. Escalation in the war on
terrorism, particularly in Iraq, had an unnerving effect on investors in April.
To add to their collective disquietude, expectations of rising interest rates
surfaced again when Alan Greenspan, chairman of the Federal Reserve Board,
testified before Congress. Such concerns overshadowed a rising tide of favorable
economic and corporate earnings news, and the S&P 500 Index declined by 1.57% in
April. Back on the defensive after the same type of news in March, the Gateway
Fund earned premiums available from index call options, but earnings were not
enough to offset the entire decline in the S&P 500 Index. The Fund declined by
0.43% in April, attesting to the benefits of hedging during a period when many
investment categories lost greater value. Fears of rising interest rates and
inflation sent bond investors scurrying. When the March employment number
exceeded expectations, bond investors became convinced that economic growth was
an irrefutable fact and, therefore, sold bonds aggressively. The Lehman Brothers
U. S. Intermediate Government/Credit Bond Index declined 2.37% for the month.
The April market harshness reversed much of the year-to-date gains in many asset
classes, but not as dramatically in the Gateway Fund.
MAY RECAP
Equity markets recovered some dignity in May as investors were forced to
consider both good economic data and, at the same time, disturbing reports on
Iraq and rising oil prices. The Gateway Fund earned a total return of 0.86% in
May, about equal to the net option premiums available for most of the month. On
balance, investors overcame the impact of disappointments in Iraq and responded
favorably to a surfeit of excellent first quarter corporate earnings reports.
This reaction drove the S&P 500 Index to a gain of 1.37% for the month, with
little reflection of the dichotomy between the blue-chip and growth-oriented
ends of the market. Bond investors continued to show concern regarding the
Federal Reserve Board's previously announced plans to raise interest rates in
the face of early evidence of inflationary pressures. Most of the damage
occurred in the first half of the month, as rates spiked sharply before easing
toward month-end. Nevertheless, the Lehman Brothers U. S. Intermediate
Government/Credit Bond Index edged down 0.45% in May, furthering the rather
significant loss registered in April.
3
GATEWAY FUND
LETTER TO SHAREHOLDERS
JUNE RECAP
In the month of June, the S&P 500 Index oscillated. Alternating up and down with
light volume, it attempted to handicap the impact of a pending interest rate
hike by the Federal Reserve Board, uncertainty over oil prices and the handover
of power in Iraq. In the end, investors decided to focus on positive corporate
earnings reports and other signs of continued economic recovery, which extended
the May rally for the S&P 500 Index, but still finished below its February high.
For the month of June, the S&P 500 Index earned 1.94%. The Gateway Fund
maintained a steady advance and finished the month of June up 1.15%, its best
month in the first half of 2004. The bond market rallied when the Federal
Reserve Board announced its 25 basis points interest rate hike on June 30,
saving a positive monthly return. The Lehman Brothers U.S. Intermediate
Government/Credit Bond Index finished up 0.30%, its only positive month of the
second quarter.
MARKET PERSPECTIVE
All in all, while the first six months of 2004 offered little reward to
investors in the broad market indexes, Gateway Fund investors could take some
solace in earning a positive return while negotiating a great deal of market
uncertainty. As we look to the second half of the year, downside risks are still
present and, because of these, we expect volatility to be on increase. Whether
or not that increased volatility will be accompanied by a declining market is
certainly a concern, but a foregone conclusion. The Gateway Fund should be able
to earn worthwhile premiums regardless of which market emerges while maintaining
an effective hedge against a significant market decline over a short period of
time.
We cordially invite you to visit our website at www.gatewayfund.com for updates
on the Fund's investment results and statistics. 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, 1994 - June 30, 2004
[LINE GRAPH]
LEHMAN BROTHERS
U.S. INTERMEDIATE
GOVERNMENT/CREDIT
GATEWAY FUND S&P 500 INDEX BOND INDEX
------------ ------------- -----------------
$10,000.00 $10,000.00 $10,000.00
Jul-94 $10,283.69 $10,328.40 $10,144.00
Aug-94 $10,451.32 $10,750.83 $10,175.45
Sep-94 $10,457.77 $10,488.51 $10,081.83
Oct-94 $10,632.61 $10,723.45 $10,080.82
Nov-94 $10,451.29 $10,332.91 $10,035.46
Dec-94 $10,690.88 $10,486.14 $10,070.58
Jan-95 $10,870.45 $10,758.05 $10,239.77
Feb-95 $11,029.29 $11,176.54 $10,451.73
Mar-95 $11,139.79 $11,506.36 $10,511.31
Apr-95 $11,229.96 $11,844.64 $10,641.65
May-95 $11,306.33 $12,317.24 $10,963.03
Jun-95 $11,348.16 $12,603.37 $11,036.48
Jul-95 $11,417.82 $13,020.55 $11,037.58
Aug-95 $11,473.55 $13,053.23 $11,138.02
Sep-95 $11,598.96 $13,604.07 $11,218.22
Oct-95 $11,633.94 $13,555.51 $11,342.74
Nov-95 $11,794.84 $14,149.24 $11,491.33
Dec-95 $11,871.15 $14,421.75 $11,611.99
Jan-96 $12,025.60 $14,912.67 $11,711.85
Feb-96 $11,983.51 $15,050.91 $11,574.82
Mar-96 $12,074.82 $15,195.85 $11,514.63
Apr-96 $12,229.74 $15,419.84 $11,474.33
May-96 $12,335.41 $15,816.13 $11,465.15
Jun-96 $12,441.00 $15,876.39 $11,586.68
Jul-96 $12,243.31 $15,174.97 $11,621.44
Aug-96 $12,412.76 $15,495.01 $11,630.74
Sep-96 $12,702.22 $16,365.83 $11,792.41
Oct-96 $12,857.95 $16,817.20 $12,001.13
Nov-96 $13,077.44 $18,086.89 $12,159.55
Dec-96 $13,121.38 $17,728.59 $12,081.73
Jan-97 $13,341.42 $18,834.86 $12,128.85
Feb-97 $13,355.56 $18,983.65 $12,151.89
Mar-97 $13,278.10 $18,205.32 $12,068.04
Apr-97 $13,548.71 $19,290.36 $12,210.45
May-97 $13,655.47 $20,463.21 $12,311.79
Jun-97 $13,840.64 $21,379.97 $12,423.83
Jul-97 $14,090.33 $23,079.67 $12,676.03
Aug-97 $13,854.88 $21,786.75 $12,612.65
Sep-97 $14,275.79 $22,978.48 $12,758.96
Oct-97 $14,054.23 $22,210.08 $12,900.59
Nov-97 $14,518.86 $23,238.19 $12,928.97
Dec-97 $14,741.87 $23,637.19 $13,032.40
Jan-98 $14,976.56 $23,897.20 $13,203.12
Feb-98 $15,195.52 $25,620.66 $13,192.56
Mar-98 $15,344.13 $26,932.70 $13,234.78
Apr-98 $15,500.79 $27,203.64 $13,300.95
May-98 $15,602.63 $26,736.01 $13,398.05
Jun-98 $15,837.61 $27,822.03 $13,483.80
Jul-98 $15,806.25 $27,527.11 $13,530.99
Aug-98 $15,006.14 $23,552.20 $13,743.43
Sep-98 $15,437.57 $25,060.95 $14,088.39
Oct-98 $15,971.86 $27,099.41 $14,074.30
Nov-98 $16,411.09 $28,741.90 $14,072.89
Dec-98 $16,549.10 $30,398.01 $14,129.18
Jan-99 $16,823.82 $31,669.26 $14,206.89
Feb-99 $16,847.37 $30,684.98 $13,998.05
Mar-99 $17,178.09 $31,912.68 $14,103.04
Apr-99 $17,461.87 $33,148.66 $14,146.75
May-99 $17,532.76 $32,366.02 $14,037.82
Jun-99 $17,840.29 $34,162.34 $14,047.65
Jul-99 $17,722.01 $33,096.47 $14,035.01
Aug-99 $17,816.64 $32,930.99 $14,046.24
Sep-99 $17,840.34 $32,028.35 $14,176.87
Oct-99 $18,266.01 $34,055.10 $14,213.73
Nov-99 $18,463.10 $34,747.44 $14,230.78
Dec-99 $18,694.07 $36,794.07 $14,183.82
Jan-00 $18,780.07 $34,947.01 $14,131.34
Feb-00 $18,851.43 $34,286.51 $14,247.22
Mar-00 $19,317.06 $37,639.73 $14,395.39
Apr-00 $19,388.53 $36,506.77 $14,362.28
May-00 $19,460.27 $35,758.38 $14,385.26
Jun-00 $19,870.88 $36,641.62 $14,638.44
Jul-00 $19,847.04 $36,070.01 $14,749.69
Aug-00 $20,494.05 $38,309.95 $14,923.74
Sep-00 $20,328.05 $36,287.19 $15,059.54
Oct-00 $20,161.36 $36,134.78 $15,128.82
Nov-00 $19,790.39 $33,287.36 $15,334.57
Dec-00 $19,928.92 $33,450.47 $15,616.73
Jan-01 $20,433.12 $34,637.96 $15,872.84
Feb-01 $19,703.66 $31,482.44 $16,023.63
Mar-01 $19,069.20 $29,489.60 $16,147.01
Apr-01 $19,599.33 $31,778.00 $16,105.03
May-01 $19,756.12 $31,990.91 $16,195.22
Jun-01 $19,669.20 $31,213.53 $16,255.14
Jul-01 $19,643.63 $30,907.64 $16,593.25
Aug-01 $18,965.92 $28,975.91 $16,759.18
Sep-01 $18,226.25 $26,637.56 $17,003.87
Oct-01 $18,505.11 $27,146.33 $17,286.13
Nov-01 $19,001.05 $29,228.46 $17,113.27
Dec-01 $19,229.06 $29,485.67 $17,019.15
Jan-02 $19,290.59 $29,055.18 $17,107.65
Feb-02 $19,132.41 $28,494.41 $17,242.80
Mar-02 $19,490.19 $29,565.80 $16,982.43
Apr-02 $19,000.98 $27,774.11 $17,262.64
May-02 $18,991.48 $27,571.36 $17,435.27
Jun-02 $18,247.02 $25,608.28 $17,585.21
Jul-02 $17,590.12 $23,613.40 $17,792.72
Aug-02 $17,808.24 $23,766.88 $18,057.83
Sep-02 $16,697.01 $21,185.80 $18,381.06
Oct-02 $18,009.39 $23,048.03 $18,309.38
Nov-02 $18,648.73 $24,403.26 $18,292.90
Dec-02 $18,292.53 $22,970.79 $18,691.68
Jan-03 $18,080.34 $22,371.25 $18,689.81
Feb-03 $17,834.45 $22,035.68 $18,953.34
Mar-03 $18,142.98 $22,249.42 $18,972.29
Apr-03 $19,059.21 $24,080.55 $19,116.48
May-03 $19,367.96 $25,347.19 $19,500.72
Jun-03 $19,358.28 $25,671.63 $19,487.07
Jul-03 $19,604.13 $26,123.45 $18,957.02
Aug-03 $19,833.50 $26,632.86 $19,002.52
Sep-03 $19,736.31 $26,350.55 $19,483.29
Oct-03 $20,089.59 $27,839.36 $19,300.14
Nov-03 $20,230.22 $28,084.35 $19,327.16
Dec-03 $20,414.32 $29,555.97 $19,495.31
Jan-04 $20,493.93 $30,099.80 $19,623.98
Feb-04 $20,635.34 $30,518.18 $19,824.14
Mar-04 $20,662.17 $30,057.36 $19,978.77
Apr-04 $20,573.32 $29,585.46 $19,505.27
May-04 $20,750.25 $29,990.78 $19,417.50
Jun-04 $20,988.88 $30,572.60 $19,475.75
GATEWAY FUND
AVERAGE ANNUAL TOTAL RETURNS
AS OF JUNE 30, 2004
One Year 8.44%
Five Years 3.31%
Ten Years 7.70%
Performance data throughout this report represents past performance and is no
guarantee of future results. 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, 2004 (UNAUDITED)
SHARES VALUE (000's)
- ------ -------------
COMMON STOCKS - 96.1%
CONSUMER DISCRETIONARY - 10.5%
43,100 AutoNation, Inc. * $ 737
13,600 AutoZone, Inc. * 1,089
48,300 Bed Bath & Beyond Inc. * 1,857
52,100 Best Buy Co., Inc. 2,644
18,500 Big Lots, Inc. * 268
12,650 Black & Decker Corporation 786
14,050 Boise Cascade Corporation 529
15,000 Brunswick Corporation 612
101,400 Carnival Corporation 4,766
19,800 Centex Corporation 906
32,750 Circuit City Stores - Circuit City Group 424
98,200 Clear Channel Communications, Inc. 3,628
358,810 Comcast Corporation - Class A * 10,057
11,900 Cooper Tire & Rubber Company 274
23,900 Dana Corporation 468
25,600 Darden Restaurants, Inc. 526
89,593 Delphi Corporation 957
13,500 Dillard's, Inc. - Class A 301
53,025 Dollar General Corporation 1,037
13,100 Dow Jones & Company, Inc. 591
45,900 Eastman Kodak Company 1,238
105,300 eBay Inc. * 9,682
27,500 Family Dollar Stores, Inc. 837
28,700 Federated Department Stores, Inc. 1,409
292,963 Ford Motor Company 4,585
23,500 Fortune Brands, Inc. 1,773
43,900 Gannett Co., Inc. 3,725
144,100 Gap, Inc. 3,494
90,400 General Motors Corporation 4,212
27,900 Genuine Parts Company 1,107
28,100 Goodyear Tire & Rubber Company * 255
47,300 Harley-Davidson, Inc. 2,930
17,950 Harrah's Entertainment, Inc. 971
28,200 Hasbro, Inc. 536
61,300 Hilton Hotels Corporation 1,144
355,750 Home Depot, Inc. 12,522
55,700 International Game Technology 2,150
67,000 Interpublic Group of Companies, Inc. * 920
45,200 J. C. Penney Company, Inc. 1,707
30,500 Johnson Controls, Inc. 1,628
20,100 Jones Apparel Group, Inc. 794
7,400 KB HOME 508
12,700 Knight-Ridder, Inc. 914
See accompanying notes to financial statements.
6
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
SHARES VALUE (000's)
- ------ -------------
CONSUMER DISCRETIONARY (CONTINUED)
54,400 Kohl's Corporation * $ 2,300
30,700 Leggett & Platt, Incorporated 820
75,300 Limited Brands 1,408
17,800 Liz Claiborne Inc. 640
126,000 Lowe's Companies, Inc. 6,621
36,300 Marriott International, Inc. - Class A 1,811
67,600 Mattel, Inc. 1,234
46,700 May Department Stores Company 1,284
12,700 Maytag Corporation 311
201,500 McDonald's Corporation 5,239
30,400 McGraw-Hill Companies, Inc. 2,328
8,000 Meredith Corporation 440
23,900 New York Times Company - Class A 1,069
44,200 Newell Rubbermaid Inc. 1,039
42,400 NIKE, Inc. - Class B 3,212
22,300 Nordstrom, Inc. 950
50,200 Office Depot, Inc. * 899
30,300 Omnicom Group Inc. 2,299
20,300 Pulte Homes, Inc. 1,056
25,550 RadioShack Corporation 731
9,500 Reebok International Ltd. 342
34,300 Sears, Roebuck and Co. 1,295
22,900 Sherwin-Williams Company 951
9,200 Snap-on Incorporated 309
13,200 Stanley Works 602
79,600 Staples, Inc. 2,333
63,600 Starbucks Corporation * 2,765
33,400 Starwood Hotels & Resorts Worldwide, Inc. 1,498
146,200 Target Corporation 6,209
23,400 Tiffany & Co. 862
729,400 Time Warner Inc. * 12,823
79,200 TJX Companies, Inc. 1,912
34,550 Toys R Us, Inc. * 550
52,600 Tribune Company 2,395
52,000 Univision Communications Inc. - Class A * 1,660
17,600 VF Corporation 857
277,291 Viacom Inc. - Class B 9,905
20,709 Visteon Corp. 242
328,600 Walt Disney Company 8,376
18,300 Wendy's International, Inc. 638
11,000 Whirlpool Corporation 755
46,400 Yum! Brands, Inc. 1,727
-------
186,195
-------
See accompanying notes to financial statements.
7
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
SHARES VALUE (000's)
- ------ -------------
CONSUMER STAPLES - 10.7%
5,800 Adolph Coors Company - Class B $ 420
14,650 Alberto-Culver Company - Class B 735
58,900 Albertson's, Inc. 1,563
328,300 Altria Group, Inc. 16,431
128,850 Anheuser-Busch Companies 6,958
104,040 Archer-Daniels-Midland Company 1,746
75,400 Avon Products, Inc. 3,479
19,400 Brown-Forman Corporation - Class B 936
65,650 Campbell Soup Company 1,765
34,200 Clorox Company 1,839
389,850 Coca-Cola Company 19,680
75,100 Coca-Cola Enterprises Inc. 2,177
85,000 Colgate-Palmolive Company 4,968
84,400 ConAgra Foods, Inc. 2,286
73,500 Costco Wholesale Corporation 3,019
63,700 CVS Corporation 2,677
60,400 General Mills, Inc. 2,871
160,600 Gillette Company 6,809
56,200 H. J. Heinz Company 2,203
41,800 Hershey Foods Corporation 1,934
65,700 Kellogg Company 2,750
80,300 Kimberly-Clark Corporation 5,290
118,900 Kroger Co. * 2,164
22,100 McCormick & Company, Incorporated 751
41,500 Pepsi Bottling Group, Inc. 1,267
273,180 PepsiCo, Inc. 14,719
411,000 Procter & Gamble Company 22,375
13,800 R. J. Reynolds Tobacco Holdings, Inc. 933
71,400 Safeway Inc. * 1,809
126,700 Sara Lee Corporation 2,913
21,600 Supervalu, Inc. 661
102,500 SYSCO Corporation 3,677
26,400 UST Inc. 950
686,400 Wal-Mart Stores, Inc. 36,214
163,800 Walgreen Co. 5,931
22,900 Winn-Dixie Stores, Inc. * 165
36,100 Wm. Wrigley Jr. Company 2,276
-------
189,341
-------
ENERGY - 6.3%
14,500 Amerada Hess Corporation 1,148
40,447 Anadarko Petroleum Corporation 2,370
52,214 Apache Corporation 2,274
11,300 Ashland Inc. 597
See accompanying notes to financial statements.
8
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
SHARES VALUE (000's)
- ------ -------------
ENERGY (CONTINUED)
53,400 Baker Hughes Incorporated $ 2,011
25,650 BJ Services Company * 1,176
63,600 Burlington Resources Inc. 2,301
171,457 ChevronTexaco Corporation 16,136
110,031 ConocoPhillips 8,394
38,500 Devon Energy Corporation 2,541
102,736 El Paso Corporation 810
18,700 EOG Resources, Inc. 1,117
1,046,582 Exxon Mobil Corporation 46,479
70,350 Halliburton Company 2,129
16,100 Kerr-McGee Corporation 866
19,900 Kinder Morgan, Inc. 1,180
55,100 Marathon Oil Corporation 2,085
23,800 Nabors Industries, Ltd. * 1,076
21,600 Noble Corporation * 818
62,600 Occidental Petroleum Corporation 3,030
16,800 Rowan Companies, Inc. * 409
94,100 Schlumberger Limited 5,976
12,200 Sunoco, Inc. 776
51,580 Transocean Inc. * 1,493
42,500 Unocal Corporation 1,615
20,600 Valero Energy Corporation 1,519
83,300 Williams Companies, Inc. 991
-------
111,317
-------
FINANCIALS - 19.5%
45,500 ACE Limited 1,924
81,500 AFLAC Incorporated 3,326
112,700 Allstate Corporation 5,246
17,300 Ambac Financial Group, Inc. 1,270
204,500 American Express Company 10,507
417,036 American International Group, Inc. 29,726
56,300 AmSouth Bancorporation 1,434
50,600 Aon Corporation 1,441
15,000 Apartment Investment & Management Co. - Class A 467
326,340 Bank of America Corporation 27,615
124,600 Bank of New York Company, Inc. 3,673
179,680 Bank One Corporation 9,164
89,800 BB&T Corporation 3,320
16,750 Bear Stearns Companies Inc. 1,412
38,500 Capital One Financial Corporation 2,633
218,575 Charles Schwab Corporation 2,100
35,985 Charter One Financial, Inc. 1,590
30,400 Chubb Corporation 2,073
See accompanying notes to financial statements.
9
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
SHARES VALUE (000's)
- ------ -------------
FINANCIALS (CONTINUED)
26,770 Cincinnati Financial Corporation $ 1,165
827,615 Citigroup Inc. 38,484
27,700 Comerica Incorporated 1,520
44,799 Countrywide Financial Corporation 3,147
58,400 E*TRADE Financial Corporation * 651
64,400 Equity Office Properties Trust 1,752
45,000 Equity Residential 1,338
155,100 Fannie Mae 11,068
17,300 Federated Investors, Inc. - Class B 525
90,019 Fifth Third Bancorp 4,841
19,750 First Horizon National Corporation 898
40,100 Franklin Resources, Inc. 2,008
110,400 Freddie Mac 6,988
24,500 Golden West Financial Corporation 2,606
77,250 Goldman Sachs Group, Inc. 7,274
46,800 Hartford Financial Services Group, Inc. 3,217
36,810 Huntington Bancshares Incorporated 843
333,400 J.P. Morgan Chase & Co. 12,926
38,500 Janus Capital Group Inc. 635
22,400 Jefferson-Pilot Corporation 1,138
65,600 KeyCorp 1,961
44,400 Lehman Brothers Holdings Inc. 3,341
28,500 Lincoln National Corporation 1,347
29,600 Loews Corporation 1,775
19,000 M&T Bank Corporation 1,659
83,600 Marsh & McLennan Companies, Inc. 3,794
35,600 Marshall & Ilsley Corporation 1,392
23,100 MBIA Inc. 1,319
204,700 MBNA Corporation 5,279
67,900 Mellon Financial Corporation 1,992
153,850 Merrill Lynch & Co., Inc. 8,305
121,200 MetLife, Inc. 4,345
15,800 MGIC Investment Corporation 1,199
24,100 Moody's Corporation 1,558
176,000 Morgan Stanley 9,287
99,700 National City Corporation 3,490
27,700 North Fork Bancorporation, Inc. 1,054
35,300 Northern Trust Corporation 1,492
29,300 Plum Creek Timber Company, Inc. 955
45,300 PNC Financial Services Group, Inc. 2,404
51,200 Principal Financial Group, Inc. 1,781
34,900 Progressive Corporation 2,977
29,000 ProLogis 955
See accompanying notes to financial statements.
10
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
SHARES VALUE (000's)
- ------ -------------
FINANCIALS (CONTINUED)
46,700 Providian Financial Corporation * $ 685
84,100 Prudential Financial, Inc. 3,908
35,200 Regions Financial Corporation 1,287
22,300 SAFECO Corporation 981
33,550 Simon Property Group, Inc. 1,725
70,300 SLM Corporation 2,844
53,000 SouthTrust Corporation 2,057
106,779 St. Paul Travelers Companies, Inc. 4,329
53,800 State Street Corporation 2,638
45,400 SunTrust Banks, Inc. 2,950
48,900 Synovus Financial Corp. 1,238
20,200 T. Rowe Price Group Inc. 1,018
17,800 Torchmark Corporation 958
303,583 U. S. Bancorp 8,367
30,500 Union Planters Corporation 909
47,500 UnumProvident Corporation 755
210,600 Wachovia Corporation 9,372
140,150 Washington Mutual, Inc. 5,415
270,050 Wells Fargo & Company 15,455
22,100 XL Capital Ltd. - Class A 1,668
14,500 Zions Bancorporation 891
---------
345,056
---------
HEALTH CARE - 12.9%
250,100 Abbott Laboratories 10,194
24,400 Aetna Inc. 2,074
21,100 Allergan, Inc. 1,889
18,000 AmerisourceBergen Corporation 1,076
203,577 Amgen Inc. * 11,109
22,200 Anthem, Inc. * 1,988
32,375 Applera Corp. - Applied Biosystems Group 704
8,500 Bausch & Lomb Incorporated 553
98,000 Baxter International Inc. 3,382
40,700 Becton, Dickinson and Company 2,108
54,200 Biogen Idec Inc. * 3,428
40,950 Biomet, Inc. 1,820
133,700 Boston Scientific Corporation * 5,722
311,200 Bristol-Myers Squibb Company 7,625
16,600 C. R. Bard, Inc. 940
68,850 Cardinal Health, Inc. 4,823
73,200 Caremark Rx, Inc. * 2,411
30,200 Chiron Corporation * 1,348
22,750 CIGNA Corporation 1,566
180,900 Eli Lilly and Company 12,647
See accompanying notes to financial statements.
11
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
SHARES VALUE (000's)
- ------ -------------
HEALTH CARE (CONTINUED)
12,500 Express Scripts, Inc. * $ 990
59,100 Forest Laboratories, Inc. * 3,347
36,300 Genzyme Corporation * 1,718
50,300 Guidant Corporation 2,811
77,600 HCA Inc. 3,227
39,000 Health Management Associates, Inc. - Class A 874
24,770 Hospira, Inc. * 684
25,700 Humana Inc. * 434
37,700 IMS Health Incorporated 884
475,272 Johnson & Johnson 26,473
38,799 King Pharmaceuticals Inc. * 444
14,400 Manor Care, Inc. 471
46,900 McKesson Corporation 1,610
43,637 Medco Health Solutions, Inc. * 1,636
40,000 MedImmune, Inc. * 936
194,050 Medtronic Inc. 9,454
355,550 Merck & Co., Inc. 16,889
7,900 Millipore Corporation * 445
43,200 Mylan Laboratories Inc. 875
1,221,550 Pfizer Inc. 41,875
16,400 Quest Diagnostics Incorporated 1,393
235,500 Schering-Plough Corporation 4,352
28,100 St. Jude Medical, Inc. * 2,126
64,000 Stryker Corporation 3,520
74,300 Tenet Healthcare Corporation * 996
26,400 Thermo Electron Corporation * 812
98,400 UnitedHealth Group Incorporated 6,126
19,200 Waters Corporation * 917
17,400 Watson Pharmaceuticals, Inc. * 468
24,900 Wellpoint Health Networks Inc. * 2,789
213,400 Wyeth 7,717
39,320 Zimmer Holdings, Inc. * 3,468
---------
228,168
---------
INDUSTRIALS - 11.0%
125,300 3M Co. 11,278
51,000 Allied Waste Industries, Inc. * 672
32,025 American Power Conversion Corporation 629
34,450 American Standard Companies Inc. * 1,389
28,100 Apollo Group, Inc. - Class A * 2,481
17,600 Avery Dennison Corporation 1,127
135,002 Boeing Company 6,897
59,350 Burlington Northern Santa Fe Corporation 2,081
54,600 Caterpillar Inc. 4,337
See accompanying notes to financial statements.
12
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
SHARES VALUE (000's)
- ------ -------------
INDUSTRIALS (CONTINUED)
163,000 Cendant Corporation * $ 3,990
27,300 Cintas Corporation 1,301
14,700 Cooper Industries, Ltd. - Class A 873
9,500 Crane Co. 298
34,600 CSX Corporation 1,134
6,800 Cummins, Inc. 425
49,400 Danaher Corporation 2,561
40,000 Deere & Company 2,806
20,050 Delta Air Lines, Inc. * 143
8,000 Deluxe Corporation 348
32,600 Dover Corporation 1,372
24,200 Eaton Corporation 1,567
67,500 Emerson Electric Co. 4,290
21,900 Equifax Inc. 542
47,900 FedEx Corp. 3,913
13,400 Fluor Corporation 639
31,950 General Dynamics Corporation 3,173
1,689,186 General Electric Company 54,730
18,700 Goodrich Corporation 605
28,000 H&R Block, Inc. 1,335
137,650 Honeywell International Inc. 5,042
49,800 Illinois Tool Works Inc. 4,775
27,600 Ingersoll-Rand Company 1,885
14,700 ITT Industries, Inc. 1,220
71,900 Lockheed Martin Corporation 3,745
70,200 Masco Corporation 2,189
18,700 Monster Worldwide Inc. * 481
11,100 Navistar International Corporation * 430
62,750 Norfolk Southern Corporation 1,664
58,092 Northrop Grumman Corporation 3,120
28,100 PACCAR Inc. 1,630
20,000 Pall Corporation 524
19,200 Parker-Hannifin Corporation 1,142
37,100 Pitney Bowes Inc. 1,642
13,525 Power-One, Inc. * 148
34,800 R. R. Donnelley & Sons Company 1,149
71,550 Raytheon Company 2,559
27,500 Robert Half International Inc. 819
29,750 Rockwell Automation, Inc. 1,116
28,400 Rockwell Collins 946
10,500 Ryder System, Inc. 421
126,550 Southwest Airlines Co. 2,122
22,000 Textron Inc. 1,306
See accompanying notes to financial statements.
13
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
SHARES VALUE (000's)
- ------ -------------
INDUSTRIALS (CONTINUED)
9,400 Thomas & Betts Corporation * $ 256
321,003 Tyco International Ltd. 10,638
41,700 Union Pacific Corporation 2,479
180,500 United Parcel Service, Inc. - Class B 13,568
82,300 United Technologies Corporation 7,529
14,700 W. W. Grainger, Inc. 845
93,000 Waste Management, Inc. 2,850
---------
195,176
---------
INFORMATION TECHNOLOGY - 16.5%
129,625 ADC Telecommunications, Inc. * 368
38,300 Adobe Systems Incorporated 1,781
56,525 Advanced Micro Devices, Inc. * 899
21,800 Affiliated Computer Services, Inc. - Class A * 1,154
76,825 Agilent Technologies, Inc. * 2,249
59,800 Altera Corporation * 1,329
60,100 Analog Devices, Inc. 2,830
25,600 Andrew Corporation * 512
60,850 Apple Computer, Inc. * 1,980
269,900 Applied Materials, Inc. * 5,295
50,100 Applied Micro Circuits Corporation * 267
18,200 Autodesk, Inc. 779
94,400 Automatic Data Processing, Inc. 3,953
71,103 Avaya Inc. * 1,123
35,750 BMC Software, Inc. * 661
50,500 Broadcom Corporation - Class A * 2,362
90,900 CIENA Corporation * 338
1,082,225 Cisco Systems, Inc. * 25,649
27,200 Citrix Systems, Inc. * 554
93,300 Computer Associates International, Inc. 2,618
29,950 Computer Sciences Corporation * 1,391
61,700 Compuware Corporation * 407
31,425 Comverse Technology, Inc. * 627
22,900 Convergys Corporation * 353
219,675 Corning Incorporated * 2,869
403,500 Dell Inc. * 14,453
48,600 Electronic Arts Inc. * 2,651
77,500 Electronic Data Systems Corporation 1,484
391,363 EMC Corporation * 4,462
139,869 First Data Corporation 6,227
31,150 Fiserv, Inc. * 1,211
59,650 Gateway, Inc. * 268
487,905 Hewlett-Packard Company 10,295
1,035,328 Intel Corporation 28,575
See accompanying notes to financial statements.
14
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
SHARES VALUE (000's)
- ------ -------------
INFORMATION TECHNOLOGY (CONTINUED)
269,850 International Business Machines Corporation $ 23,787
30,900 Intuit Inc. * 1,192
32,200 Jabil Circuit, Inc. * 811
230,550 JDS Uniphase Corporation * 874
31,500 KLA-Tencor Corporation * 1,555
20,800 Lexmark International, Inc. * 2,008
49,700 Linear Technology Corporation 1,962
61,125 LSI Logic Corporation * 466
685,940 Lucent Technologies Inc. * 2,593
51,800 Maxim Integrated Products, Inc. 2,715
14,750 Mercury Interactive Corporation * 735
97,700 Micron Technology, Inc. * 1,496
1,727,650 Microsoft Corporation 49,342
30,375 Molex Incorporated 974
375,271 Motorola, Inc. 6,849
57,300 National Semiconductor Corporation * 1,260
15,000 NCR Corporation * 744
55,550 Network Appliance, Inc. * 1,196
62,050 Novell, Inc. * 521
23,800 Novellus Systems, Inc. * 748
26,500 NVIDIA Corporation * 543
830,698 Oracle Corporation * 9,910
43,250 Parametric Technology Corporation * 216
60,400 Paychex, Inc. 2,046
58,400 PeopleSoft, Inc. * 1,080
20,500 PerkinElmer, Inc. 411
28,300 PMC-Sierra, Inc. * 406
14,850 QLogic Corporation * 395
129,900 QUALCOMM Incorporated 9,480
22,349 Sabre Holdings Corporation 619
83,400 Sanmina-SCI Corporation * 759
24,575 Scientific-Atlanta, Inc. 848
80,500 Siebel Systems, Inc. * 860
153,900 Solectron Corporation * 996
532,275 Sun Microsystems, Inc. * 2,310
46,600 SunGard Data Systems Inc. * 1,212
50,050 Symantec Corporation * 2,191
37,650 Symbol Technologies, Inc. 555
13,700 Tektronix, Inc. 466
66,500 Tellabs, Inc. * 581
31,000 Teradyne, Inc. * 704
277,050 Texas Instruments Incorporated 6,699
53,400 Unisys Corporation * 741
See accompanying notes to financial statements.
15
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
SHARES VALUE (000's)
- ------ -------------
INFORMATION TECHNOLOGY (CONTINUED)
69,076 VERITAS Software Corporation * $ 1,913
128,200 Xerox Corporation * 1,859
55,500 Xilinx, Inc. 1,849
215,550 Yahoo! Inc. * 7,831
----------
291,282
----------
MATERIALS - 2.8%
36,500 Air Products and Chemicals, Inc. 1,914
139,370 Alcoa Inc. 4,603
13,123 Allegheny Technologies Incorporated 237
9,000 Ball Corporation 648
17,000 Bemis Company, Inc. 480
149,948 Dow Chemical Company 6,103
160,300 E. I. du Pont de Nemours and Company 7,121
12,400 Eastman Chemical Company 573
41,300 Ecolab Inc. 1,309
19,900 Engelhard Corporation 643
28,200 Freeport-McMoRan Copper & Gold, Inc. - Class B 935
40,938 Georgia-Pacific Group 1,514
8,000 Great Lakes Chemical Corporation 217
17,500 Hercules Incorporated * 213
14,900 International Flavors & Fragrances Inc. 557
77,576 International Paper Company 3,468
17,300 Louisiana-Pacific Corporation 409
32,325 MeadWestvaco Corporation 950
42,795 Monsanto Company 1,648
71,000 Newmont Mining Corporation 2,752
12,700 Nucor Corporation 975
24,500 Pactiv Corporation * 611
14,900 Phelps Dodge Corporation 1,155
27,500 PPG Industries, Inc. 1,719
52,200 Praxair, Inc. 2,083
36,000 Rohm and Haas Company 1,497
13,600 Sealed Air Corporation * 725
11,000 Sigma-Aldrich Corporation 656
8,800 Temple-Inland Inc. 609
18,100 United States Steel Corporation 636
16,300 Vulcan Materials Company 775
38,850 Weyerhaeuser Company 2.452
14,000 Worthington Industries, Inc. 287
----------
50,474
----------
TELECOMMUNICATION SERVICES - 3.3%
49,400 ALLTEL Corporation 2,501
127,121 AT&T Corp. 1,860
See accompanying notes to financial statements.
16
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
SHARES VALUE (000's)
- ------ -------------
TELECOMMUNICATION SERVICES (CONTINUED)
436,609 AT&T Wireless Services Inc. * $ 6,252
293,500 BellSouth Corporation 7,696
22,300 CenturyTel, Inc. 670
46,200 Citizens Communications Company * 559
177,750 Nextel Communications, Inc. - Class A * 4,739
285,664 Qwest Communications International Inc. * 1,025
529,856 SBC Communications Inc. 12,849
228,350 Sprint Corporation 4,019
443,468 Verizon Communications Inc. 16,049
---------------
58,219
---------------
UTILITIES - 2.6%
102,100 AES Corporation * 1,014
20,300 Allegheny Energy, Inc. * 313
29,200 Ameren Corporation 1,254
63,350 American Electric Power Company, Inc. 2,027
66,600 Calpine Corporation * 288
49,300 CenterPoint Energy, Inc. 567
28,700 Cinergy Corp. 1,091
26,100 CMS Energy Corporation * 238
38,700 Consolidated Edison, Inc. 1,539
27,000 Constellation Energy Group 1,023
52,417 Dominion Resources, Inc. 3,306
27,700 DTE Energy Company 1,123
146,600 Duke Energy Corporation 2,974
60,600 Dynegy Inc. - Class A * 258
52,400 Edison International 1,340
37,000 Entergy Corporation 2,072
105,900 Exelon Corporation 3,525
52,980 FirstEnergy Corp. 1,982
29,600 FPL Group, Inc. 1,893
25,600 KeySpan Corporation 940
7,000 NICOR Inc. 238
42,453 NiSource Inc. 875
6,000 Peoples Energy Corporation 253
66,900 PG&E Corporation * 1,869
14,700 Pinnacle West Capital Corporation 594
28,400 PPL Corporation 1,304
39,553 Progress Energy, Inc. 1,742
38,100 Public Service Enterprise Group Incorporated 1,525
36,800 Sempra Energy 1,267
118,200 Southern Company 3,446
30,200 TECO Energy, Inc. 362
52,000 TXU Corporation 2,107
See accompanying notes to financial statements.
17
GATEWAY FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
SHARES VALUE (000's)
------ -------------
UTILITIES (CONTINUED)
63,735 Xcel Energy, Inc. $ 1,065
--------------
45,414
--------------
Total common stocks (cost $1,373,809) 1,700,642
--------------
CONTRACTS
PUT OPTIONS - 0.5%
3,576 On S&P 500 Index expiring August 21, 2004 at 1025 1,037
7,718 On S&P 500 Index expiring September 18, 2004 at 1025 4,862
3,609 On S&P 500 Index expiring September 18, 2004 at 1050 3,104
--------------
Total put options (cost $14,901) 9,003
--------------
REPURCHASE AGREEMENT - 5.6% **
0.80% repurchase agreement with U. S. Bank, N. A.
dated June 30, 2004, due July 1, 2004 (repurchase proceeds $98,751) 98,749
--------------
Total common stocks, put options and repurchase agreement - 102.2% 1,808,394
--------------
CALL OPTIONS - (2.6%)***
(4,470) On S&P 500 Index expiring July 17, 2004 at 1100 (19,154)
(6,331) On S&P 500 Index expiring July 17, 2004 at 1125 (13,675)
(4,102) On S&P 500 Index expiring August 21, 2004 at 1125 (13,024)
--------------
Total call options outstanding (premiums received $38,087) (45,853)
--------------
OTHER ASSETS AND LIABILITIES, NET - 0.4% 7,581
--------------
NET ASSETS - 100.0% $ 1,770,122
==============
* Non-income producing.
** Repurchase agreement fully collateralized by U. S. Government Agency
obligations.
*** The $1,700,642,000 aggregate value of common stocks covers outstanding call
options.
See accompanying notes to financial statements.
18
GATEWAY FUND
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 2004 (UNAUDITED)
(000's)
ASSETS:
Common stocks, at value (cost $1,373,809) $ 1,700,642
Put options, at value (cost $14,901) 9,003
Repurchase agreement 98,749
Receivable for Fund shares sold 6,856
Dividends and interest
receivable 1,899
Other assets 77
-----------
Total assets 1,817,226
-----------
LIABILITIES:
Call options outstanding, at value (premiums
received $38,087) 45,853
Payable for Fund shares redeemed 622
Accrued distribution expenses 525
Accrued investment advisory and management fees 15
Other accrued expenses and liabilities 89
-----------
Total liabilities 47,104
-----------
NET ASSETS $ 1,770,122
===========
NET ASSETS CONSIST OF:
Paid-in capital $ 1,654,192
Undistributed net investment income 5,456
Accumulated net realized loss on investment transactions (202,695)
Net unrealized appreciation on investments 313,169
-----------
Net assets $ 1,770,122
===========
FUND SHARES OUTSTANDING
(unlimited number of shares authorized, no par value) 74,853
===========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE $ 23.65
===========
See accompanying notes to financial statements.
19
GATEWAY FUND
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
(000's)
INVESTMENT INCOME:
Dividends $ 12,589
Interest 325
--------
Total investment income 12,914
--------
EXPENSES:
Investment advisory and management fees 4,447
Distribution expenses 2,757
Professional fees 83
Registration fees 56
Standard & Poor's licensing fees 50
Custodian fees 44
Trustees' fees 38
Insurance expense 28
Other expenses 25
--------
Total expenses 7,528
--------
NET INVESTMENT INCOME 5,386
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
REALIZED LOSS ON INVESTMENT TRANSACTIONS:
Common stocks (2,585)
Put options expired and closed (27,876)
Call options expired and closed (10,735)
--------
Net realized loss on investment transactions (41,196)
--------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON INVESTMENTS:
Common stocks 43,320
Put options 16
Call options 37,411
--------
Net change in unrealized appreciation/depreciation on investments 80,747
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 39,551
--------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 44,937
========
See accompanying notes to financial statements.
20
GATEWAY FUND
STATEMENTS OF CHANGES IN NET ASSETS
(000's)
Six Months Year
Ended Ended
June 30, 2004 December 31,
(Unaudited) 2003
------------- ------------
FROM OPERATIONS:
Net investment income $ 5,386 $ 10,279
Net realized loss on investment transactions (41,196) (128,222)
Net change in unrealized appreciation/depreciation on investments 80,747 249,831
----------- -----------
Net increase in net assets from operations 44,937 131,888
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income - (10,278)
----------- -----------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 520,759 544,736
Net asset value of shares issued in reinvestment of
distributions to shareholders - 9,123
Payments for shares redeemed (201,135) (338,356)
----------- -----------
Net increase in net assets from Fund shares transactions 319,624 215,503
----------- -----------
NET INCREASE IN NET ASSETS 364,561 337,113
NET ASSETS:
Beginning of period 1,405,561 1,068,448
----------- -----------
End of period $ 1,770,122 $ 1,405,561
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME $ 5,456 $ 70
=========== ===========
FUND SHARE TRANSACTIONS:
Shares sold 22,388 24,684
Shares issued in reinvestment of distributions to shareholders - 397
Shares redeemed (8,655) (15,429)
----------- -----------
Net increase in Fund shares outstanding 13,733 9,652
Shares outstanding, beginning of period 61,120 51,468
----------- -----------
Shares outstanding, end of period 74,853 61,120
=========== ===========
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,
2004 ------------------------------------------------------------------------
(Unaudited) 2003 2002 2001 2000 1999
----------- ---- ---- ---- ---- ----
BEGINNING NET ASSET VALUE $ 23.00 $ 20.76 $ 21.98 $ 22.92 $ 23.67 $ 21.02
---------- ----------- ----------- ----------- ----------- ---------
INVESTMENT OPERATIONS:
Net investment income 0.07 0.17 0.15 0.11 0.08 0.07
Net realized and unrealized gain (loss) 0.58 2.24 (1.22) (0.92) 1.49 2.65
---------- ----------- ----------- ----------- ----------- ---------
Total from investment operations 0.65 2.41 (1.07) (0.81) 1.57 2.72
---------- ----------- ----------- ----------- ----------- ---------
DISTRIBUTIONS:
Dividends from net investment income - (0.17) (0.15) (0.11) (0.08) (0.07)
Distributions from net realized gain - - - (0.02) (2.24) -
---------- ----------- ----------- ----------- ----------- ---------
Total distributions - (0.17) (0.15) (0.13) (2.32) (0.07)
---------- ----------- ----------- ----------- ----------- ---------
ENDING NET ASSET VALUE $ 23.65 $ 23.00 $ 20.76 $ 21.98 $ 22.92 $ 23.67
========== =========== =========== =========== =========== =========
TOTAL RETURN 2.83%(1) 11.61% (4.86%) (3.53%) 6.61% 12.97%
ENDING NET ASSETS (000'S) $1,770,122 $ 1,405,561 $ 1,068,448 $ 1,285,131 $ 1,491,052 $ 922,128
AVERAGE NET ASSETS RATIOS:
Total expenses 0.97%(2) 0.97% 0.97% 0.97% 0.98% 0.98%
Net investment income 0.69%(2) 0.86% 0.66% 0.43% 0.33% 0.37%
PORTFOLIO TURNOVER RATE 4%(2) 5% 13% 18% 22% 11%
(1) Unannualized.
(2) Annualized.
See accompanying notes to financial statements.
22
GATEWAY FUND
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2004 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Gateway Trust (the Trust) is an Ohio business trust, registered under the
Investment Company Act of 1940, which is authorized to establish and operate one
or more separate series of mutual funds. The Trust currently operates one
diversified mutual fund, the Gateway Fund (the Fund). 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 owning 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 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, 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 AND INVESTMENT INCOME - 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.
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.
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).
23
GATEWAY FUND
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2004 (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, 2003, the components of distributable earnings on a tax basis
were as follows (000's):
Cost of portfolio investments $ 1,093,340
=================
Gross unrealized appreciation $ 311,427
Gross unrealized depreciation 48,107
-----------------
Net unrealized appreciation 263,320
Undistributed ordinary income 70
Capital loss carryforwards (186,689)
Other loss deferrals (5,708)
-----------------
Distributable earnings $ 70,993
=================
At December 31, 2003, $2,865,000 of the Fund's capital loss carryforwards
expires December 31, 2009 and $183,824,000 expires December 31, 2011. The
difference between the book basis and tax basis of distributable earnings
resulted from the tax deferral of losses on wash sales and certain hedged
transactions, and the tax recognition of net unrealized depreciation on open
option contracts at December 31, 2003. There were no differences between the
book basis and tax basis of distributions paid for the years ended December 31,
2003 and 2002.
At June 30, 2004, based on a $1,371,105,000 federal tax cost of common stocks
and options, gross unrealized appreciation totaled $359,167,000, gross
unrealized depreciation totaled $66,480,000 and net unrealized appreciation
totaled $292,687,000.
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 Fund's
expenses of reporting to shareholders under the Management Agreement.
If total annual operating expenses (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.
24
GATEWAY FUND
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2004 (UNAUDITED)
3. INVESTMENT TRANSACTIONS
For the six months ended June 30, 2004, cost of purchases of investment
securities (excluding short-term investments) totaled $244,191,000 and proceeds
from sales totaled $27,849,000.
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, 2004, transactions in written options were as follows:
Contracts Premiums (000's)
--------- ----------------
Outstanding at December 31, 2003 12,982 $ 45,734
Options written 50,800 133,592
Options terminated in closing
purchase transactions (46,563) (133,260)
Options expired (2,316) (7,979)
------ -------------
Outstanding at June 30, 2004 14,903 $ 38,087
====== =============
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, 2004, 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, 2004, 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 Account
CONVENIENCE
Automatic Investment Program
Systematic Withdrawal Program
Telephone Redemptions
FLEXIBILITY
Available for numerous investment options:
Individuals
IRAs
Trusts
Pension Plans
Gifts to Minors
ITEM 1. REPORTS TO STOCKHOLDERS
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 REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
Schedule of Investments is included as part of the report to shareholders filed
under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANIES AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant has not adopted procedures by which shareholders may recommend
nominees to the registrant's board of trustees.
ITEM 10. CONTROLS AND PROCEDURES.
(a) Based on an evaluation of the registrant's disclosure controls and
procedures as of September 2, 2004, 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 11. EXHIBITS.
(a)(1) Applicable to Annual Reports only.
(a)(2) EX-99.CERT Certifications required by Rule 30a-2(a) of the Investment
Company Act of 1940 are filed herewith.
(a)(3) Not Applicable.
(b) EX-99.906.CERT required by Rule 30a-2(b) of the Investment Company Act of
1940 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, 2004
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, 2004
By /s/ Gary H. Goldschmidt
------------------------------------
Gary H. Goldschmidt
Vice President and Treasurer
Date September 2, 2004