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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: December 31, 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.
Item 1. Reports to Stockholders
GATEWAY
FUND
ANNUAL REPORT
DECEMBER 31, 2004
THE GATEWAY TRUST
P.O. BOX 5211
CINCINNATI, OH 45201-5211
800.354.6339
GATEWAY FUND
TOTAL RETURNS -- DECEMBER 31, 2004
Average Annual Total Return
----------------------------------------------------- 12/31/04
One Three Five Ten Since Inception Price
Year Years Years Years on 12/7/77 Per Share
---- ----- ----- ----- ---------- ---------
GATEWAY FUND 6.95% 4.33% 3.16% 7.40% 9.20% $ 24.31
Lehman Brothers U. S. Intermediate
Government/Credit Bond Index 3.04% 5.69% 7.21% 7.15%
S&P 500 Index 10.87% 3.58% (2.30%) 12.07%
Cumulative Total Return
-------------------------------------------------------
One Three Five Ten Since Inception
Year Years Years Years on 12/7/77
---- ----- ----- ----- ---------------
GATEWAY FUND 6.95% 13.57% 16.81% 104.26% 982.64%
Lehman Brothers U. S. Intermediate
Government/Credit Bond Index 3.04% 18.04% 41.64% 99.57%
S&P 500 Index 10.87% 11.14% (10.97%) 212.41%
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.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available without charge: (i) upon request by calling the Fund at
800.354.6339, and (ii) on the SEC's website at www.sec.gov and may be reviewed
and copied at the SEC's Public Reference Room in Washington, D.C. Information on
the operation of the Public Reference Room may be obtained by calling
800.SEC.0330.
1
GATEWAY FUND
LETTER TO SHAREHOLDERS
Dear Shareholder:
Throughout its history, the Gateway Fund has endeavored to deliver the rewards
of effective risk management to its investors. That remains its highest
priority. The Fund not only strives for consistent returns, but also returns in
excess of those available from other investments comparable in volatility. The
following pages review the Fund's risk management strategy, provide an overview
of the markets in 2004, discuss the Fund's performance for the year and offer
our perspectives for 2005. We trust that you will find them informative.
STRATEGY REVIEW
The investment objective of the Gateway 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
employs a strategy comprised of three integrated components: sale of
cash-settled index call options on the entire value of its equity portfolio;
purchase of index put options; and ownership of a broadly diversified common
stock portfolio designed to support its index-option-based risk management
strategy.
By selling index call options, the Fund receives a steady cash flow in exchange
for the uncertain future potential of its equity portfolio. The degree of
uncertainty in the equity markets determines the magnitude of the cash flows
available to the Fund. In highly volatile markets, uncertainty is magnified and
cash flow from the sale of index call options rises. Conversely, when markets
exhibit reduced volatility, this cash flow decreases. The Fund seeks to optimize
the cash flows available from selling index call options, which serve as the
Fund's primary source of return.
As the cash flow from the sale of index call options varies over time and is
somewhat limited in reducing downside exposure, the Fund also buys index put
options to protect against a significant market decline over a short period of
time. The value of an index put option generally rises as the underlying stock
prices decline. The Fund seeks the most cost-effective protection available from
index put options, which serve as a key component in reducing the overall
volatility of the Fund.
ASSET ALLOCATION
AS A PERCENTAGE OF NET ASSETS
AS OF DECEMBER 31, 2004
Common Stocks 98.9%
Put Options 0.2%
Repurchase Agreements 3.8%
Call Options (3.2%)
Other Assets and Liabilities, Net 0.3%
-----
100.0%
=====
The final component of the Fund's risk management strategy is the continuous
ownership of a diversified common stock portfolio generally representative of
the broad U. S. equity market. The common stock portfolio is designed to provide
support for the index option components of the Fund's strategy by efficiently
tracking the performance of the index underlying the Fund's option positions
within defined parameters.
The total return of the Fund over a given period is primarily attributable to
the interaction of the three components of the index-option-based risk
management strategy. Accordingly, total return is a combination of the change in
market value and the dividend yield associated with the common stock portfolio,
the cash flow from index call options, the cost of purchasing index put options
and the operating expenses of the Fund.
2
GATEWAY FUND
LETTER TO SHAREHOLDERS
2004 MARKET OVERVIEW
Although 2004 was a year of great political and economic uncertainty, little
evidence of market volatility emerged from trading in the equity markets during
the year. For much of the year the equity markets languished in an
uncharacteristically narrow trading range. A number of cross currents dominated
market sentiment during the first three quarters of 2004 which left investors
with little guidance upon which to base their decisions. On the positive side,
corporate profitability remained robust, productivity continued to grow and the
economy posted solid, although not spectacular, growth. On the negative side,
investors contended with high oil and gasoline prices, an unexpected lack of
recovery in jobs growth, difficult periods in the war in Iraq and the
uncertainty of a hotly contested presidential race.
When the presidential race concluded in early November, a major market
uncertainty was removed and investors acted on their desire to return to
equities in anticipation of continued economic growth. On the heels of its
lackluster performance during the first three quarters of 2004, the S&P 500
Index rode the strength of an 11% rally after October 25 to deliver a total
return of 10.87% for the year. Lower-risk bond investments, as represented by
the Lehman Brothers U. S. Intermediate Government/Credit Bond Index, earned a
total return of 3.04% in 2004, despite the Federal Reserve Board's five separate
increases of 25 basis points each to short-term interest rates over the course
of the year.
The year 2004 hearkened back to the subdued equity markets of 1992, 1993 and
1994. In the options markets, call sellers continued to lament the lack of usual
volatility and concurrent levels of option premiums. Puts, conversely, remained
relatively cheap. While many feel that the low premiums and implied volatility
reflected investor complacency, the truth is more an enigmatic blend of fear and
caution. Low expectations for future market upside and fear of event risk drove
investors to the sidelines, resulting in a tighter-than-normal trading range for
the broad indexes. As the year 2004 came to a close, market volatility was at
one of its lowest levels since 1995.
GROWTH OF A $10,000 INVESTMENT
JANUARY 1, 1995 - DECEMBER 31, 2004
[LINE GRAPH]
Gateway Fund
Average Annual Total Return
One Year Five years Ten Years
-------- ---------- ---------
6.95% 3.16% 7.40%
3
LEHMAN BROTHERS U.S.
INTERMEDIATE
GOVERNMENT/CREDIT BOND
GATEWAY FUND S&P 500 INDEX INDEX
$10,000.00 $10,000.00 $10,000.00
Jan-95 $10,167.96 $10,259.30 $10,168.00
Feb-95 $10,316.54 $10,658.39 $10,378.48
Mar-95 $10,419.90 $10,972.92 $10,437.63
Apr-95 $10,504.24 $11,295.52 $10,567.06
May-95 $10,575.67 $11,746.21 $10,886.19
Jun-95 $10,614.80 $12,019.08 $10,959.12
Jul-95 $10,679.96 $12,416.91 $10,960.22
Aug-95 $10,732.09 $12,448.07 $11,059.96
Sep-95 $10,849.39 $12,973.38 $11,139.59
Oct-95 $10,882.11 $12,927.07 $11,263.24
Nov-95 $11,032.61 $13,493.27 $11,410.79
Dec-95 $11,104.00 $13,753.15 $11,530.60
Jan-96 $11,248.46 $14,221.31 $11,629.76
Feb-96 $11,209.09 $14,353.14 $11,493.70
Mar-96 $11,294.50 $14,491.36 $11,433.93
Apr-96 $11,439.41 $14,704.96 $11,393.91
May-96 $11,538.25 $15,082.88 $11,384.79
Jun-96 $11,637.01 $15,140.35 $11,505.47
Jul-96 $11,452.10 $14,471.45 $11,539.99
Aug-96 $11,610.60 $14,776.65 $11,549.22
Sep-96 $11,881.36 $15,607.10 $11,709.76
Oct-96 $12,027.02 $16,037.54 $11,917.02
Nov-96 $12,232.33 $17,248.38 $12,074.32
Dec-96 $12,273.43 $16,906.69 $11,997.05
Jan-97 $12,479.25 $17,961.66 $12,043.84
Feb-97 $12,492.48 $18,103.56 $12,066.72
Mar-97 $12,420.02 $17,361.31 $11,983.46
Apr-97 $12,673.14 $18,396.05 $12,124.86
May-97 $12,773.01 $19,514.53 $12,225.50
Jun-97 $12,946.21 $20,388.78 $12,336.75
Jul-97 $13,179.76 $22,009.69 $12,587.19
Aug-97 $12,959.53 $20,776.70 $12,524.25
Sep-97 $13,353.24 $21,913.19 $12,669.53
Oct-97 $13,145.99 $21,180.41 $12,810.17
Nov-97 $13,580.60 $22,160.85 $12,838.35
Dec-97 $13,789.20 $22,541.36 $12,941.06
Jan-98 $14,008.72 $22,789.31 $13,110.58
Feb-98 $14,213.53 $24,432.88 $13,100.09
Mar-98 $14,352.54 $25,684.08 $13,142.01
Apr-98 $14,499.08 $25,942.47 $13,207.72
May-98 $14,594.34 $25,496.52 $13,304.14
Jun-98 $14,814.13 $26,532.18 $13,389.29
Jul-98 $14,784.80 $26,250.94 $13,436.15
Aug-98 $14,036.39 $22,460.31 $13,647.10
Sep-98 $14,439.93 $23,899.11 $13,989.64
Oct-98 $14,939.70 $25,843.07 $13,975.65
Nov-98 $15,350.54 $27,409.42 $13,974.25
Dec-98 $15,479.64 $28,988.75 $14,030.15
Jan-99 $15,736.60 $30,201.06 $14,107.32
Feb-99 $15,758.63 $29,262.41 $13,899.94
Mar-99 $16,067.98 $30,433.20 $14,004.19
Apr-99 $16,333.42 $31,611.87 $14,047.60
May-99 $16,399.73 $30,865.52 $13,939.43
Jun-99 $16,687.38 $32,578.55 $13,949.19
Jul-99 $16,576.75 $31,562.10 $13,936.64
Aug-99 $16,665.27 $31,404.29 $13,947.79
Sep-99 $16,687.43 $30,543.50 $14,077.50
Oct-99 $17,085.59 $32,476.29 $14,114.10
Nov-99 $17,269.95 $33,136.54 $14,131.04
Dec-99 $17,485.99 $35,088.28 $14,084.41
Jan-00 $17,566.43 $33,326.85 $14,032.29
Feb-00 $17,633.18 $32,696.97 $14,147.36
Mar-00 $18,068.72 $35,894.73 $14,294.49
Apr-00 $18,135.58 $34,814.30 $14,261.61
May-00 $18,202.68 $34,100.61 $14,284.43
Jun-00 $18,586.75 $34,942.89 $14,535.84
Jul-00 $18,564.45 $34,397.78 $14,646.31
Aug-00 $19,169.65 $36,533.89 $14,819.14
Sep-00 $19,014.38 $34,604.90 $14,953.99
Oct-00 $18,858.46 $34,459.56 $15,022.78
Nov-00 $18,511.46 $31,744.14 $15,227.09
Dec-00 $18,641.04 $31,899.69 $15,507.27
Jan-01 $19,112.66 $33,032.13 $15,761.59
Feb-01 $18,430.34 $30,022.90 $15,911.32
Mar-01 $17,836.88 $28,122.45 $16,033.84
Apr-01 $18,332.75 $30,304.75 $15,992.15
May-01 $18,479.41 $30,507.80 $16,081.71
Jun-01 $18,398.10 $29,766.46 $16,141.21
Jul-01 $18,374.18 $29,474.75 $16,476.95
Aug-01 $17,740.27 $27,632.57 $16,641.72
Sep-01 $17,048.40 $25,402.63 $16,884.69
Oct-01 $17,309.24 $25,887.82 $17,164.97
Nov-01 $17,773.13 $27,873.41 $16,993.32
Dec-01 $17,986.41 $28,118.70 $16,899.86
Jan-02 $18,043.97 $27,708.16 $16,987.74
Feb-02 $17,896.01 $27,173.40 $17,121.94
Mar-02 $18,230.66 $28,195.12 $16,863.40
Apr-02 $17,773.07 $26,486.49 $17,141.65
May-02 $17,764.18 $26,293.14 $17,313.06
Jun-02 $17,067.83 $24,421.07 $17,461.96
Jul-02 $16,453.39 $22,518.67 $17,668.01
Aug-02 $16,657.41 $22,665.04 $17,931.26
Sep-02 $15,617.99 $20,203.62 $18,252.23
Oct-02 $16,845.56 $21,979.51 $18,181.05
Nov-02 $17,443.58 $23,271.91 $18,164.68
Dec-02 $17,110.41 $21,905.85 $18,560.67
Jan-03 $16,911.92 $21,334.11 $18,558.82
Feb-03 $16,681.92 $21,014.09 $18,820.50
Mar-03 $16,970.52 $21,217.93 $18,839.32
Apr-03 $17,827.53 $22,964.17 $18,982.50
May-03 $18,116.34 $24,172.08 $19,364.04
Jun-03 $18,107.28 $24,481.48 $19,350.49
Jul-03 $18,337.24 $24,912.36 $18,824.16
Aug-03 $18,551.79 $25,398.15 $18,869.33
Sep-03 $18,460.88 $25,128.93 $19,346.73
Oct-03 $18,791.33 $26,548.71 $19,164.87
Nov-03 $18,922.87 $26,782.34 $19,191.70
Dec-03 $19,095.07 $28,185.74 $19,358.67
Jan-04 $19,169.54 $28,704.35 $19,486.43
Feb-04 $19,301.81 $29,103.34 $19,685.20
Mar-04 $19,326.90 $28,663.88 $19,838.74
Apr-04 $19,243.80 $28,213.86 $19,368.56
May-04 $19,409.29 $28,600.39 $19,281.40
Jun-04 $19,632.50 $29,155.24 $19,339.25
Jul-04 $19,483.29 $28,190.20 $19,501.70
Aug-04 $19,533.95 $28,302.96 $19,827.38
Sep-04 $19,692.18 $28,608.63 $19,861.08
Oct-04 $19,867.44 $29,046.35 $19,994.15
Nov-04 $20,256.84 $30,219.82 $19,812.20
Dec-04 $20,422.94 $31,247.29 $19,946.93
Past performance does not guarantee 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.
GATEWAY FUND
LETTER TO SHAREHOLDERS
2004 PERFORMANCE COMMENTARY
For the year ended December 31, 2004, the Gateway Fund delivered a total return
of 6.95%. As a result of low volatility in the equity markets, cash flows from
the Fund's call writing activity were below historical averages, but a tame
stock market resulted in option premiums directly benefiting the Fund's
performance. As previously mentioned, the S&P 500 Index earned a total return of
10.87% for the same period, while bonds, as measured by the Lehman Brothers U.
S. Intermediate Government/Credit Bond Index, posted a total return of 3.04%.
Since the common stock portfolio is designed to support the index-option-based
risk management strategy as efficiently as possible, discussion of the Fund's
comparative total return performance to the S&P 500 Index is more clearly
focused on the results of its index option hedging activity.
During the first quarter of 2004, the Fund achieved fairly consistent, positive
performance, despite relatively low option premium levels. The S&P 500 Index
continued its fourth quarter 2003 rally into January and February, as the Fund
lagged with in-the-money index call option positions. During March, those
positions helped buffer the Fund against a sharp market sell-off. Stock market
volatility declined during the first two months of the quarter, but spiked in
March allowing the Fund to restore a more favorable premium-to-earn posture. In
this environment of increasing uncertainty as the quarter unfolded, the Fund
delivered three consecutive positive monthly returns, cumulatively totaling
1.22% for the quarter versus a 1.69% quarterly return for the S&P 500 Index.
Bonds responded favorably to disappointing job creations and the lack of
economic vigor, with the Lehman Brothers U. S. Intermediate Government/Credit
Bond Index posting a total return of 2.47% for the first quarter.
For the second quarter of 2004, the Gateway Fund earned 1.59% as compared to a
return of 1.72% for the S&P 500 Index. As the equity market sell-off continued
into April, the Fund continued to earn premiums from index call options allowing
it to offset much, though not all, of the monthly decline experienced by the S&P
500 Index. In May and June, investors on balance focused more on positive
corporate earnings reports and other signs of continued economic recovery than
they did on rising oil prices and disturbing reports on Iraq. During this
period, the Fund derived its monthly returns from the accumulation of option
premiums, with little demand placed on them to hedge falling stock values. By
quarter-end, volatility fell to one of its lowest levels over the past ten
years. Fears of rising interest rates and inflation caused the bond market to
record one of its worst quarters in over a decade, with the Lehman Brothers U.
S. Intermediate Government/Credit Bond Index down 2.52% in the second quarter.
In the third quarter of 2004, the Gateway Fund demonstrated its ability to
dampen volatility as the S&P 500 Index seesawed. When the S&P 500 Index declined
sharply in July and into mid-August, the Fund's index-option-based risk
management strategy helped preserve its portfolio assets. When the S&P 500 Index
recovered in the second half of the quarter, net premiums from index option
transactions more than offset a slight initial decline in the Fund. For the
third quarter, the Fund posted a net gain of 0.30% while the S&P 500 Index
dropped 1.87%. Bonds, as represented by the Lehman Brothers U. S. Intermediate
Government/Credit Bond Index, recovered from their second quarter decline,
recording a gain of 2.71% for the third quarter.
Early in the fourth quarter of 2004, pre-election uncertainty increased market
volatility which was reflected in higher option premiums for the Fund in
October. With the elimination of a major uncertainty following the November
presidential election, investors returned their focus to robust corporate
profits and overall economic activity. Volatility, however, returned to the
relatively low levels experienced throughout most of 2004. Amid a strong equity
rally, the Gateway Fund shook off the effects of low market volatility and
lower-than-historical average option premiums to deliver a return of 3.71% for
the fourth quarter. The S&P 500 Index earned 9.23% for the same period. Despite
record deficits in both the balance of payments and the federal budget, low
levels of inflation encouraged bond investors, prompting the Lehman Brothers U.
S. Intermediate Government/Credit Bond Index to a gain of 0.44% for the fourth
quarter.
4
GATEWAY FUND
LETTER TO SHAREHOLDERS
The combination of the Gateway Fund's diversified common stock portfolio, the
steady cash flow from the sale of index call options and the downside protection
from index put options is designed to provide fairly consistent returns over a
wide range of fixed income and equity market environments. Despite the lack of
volatility that supports higher option premiums, the Fund was able to produce
returns in 2004 that were fairly consistent with its historical averages, while
adhering to its disciplined hedged approach to equity investing.
COMMON STOCK PORTFOLIO TRANSITION
Prior to September 2004, the Gateway Fund's common stock portfolio was comprised
of the 500 stocks included in the S&P 500 Index, in approximately the same
proportions as the S&P 500 Index. In September 2004, the Fund began
implementation of a change in the composition of its diversified stock
portfolio. A multi-factor quantitative model is now used to construct a
portfolio that meets established criteria and constraints, which include keeping
predicted differences between the price performance of the portfolio and that of
the index underlying the Fund's option strategy within defined parameters, as
well as other criteria that may affect performance, such as dividend yield.
COMMON STOCK PORTFOLIO COMPOSITION
AS OF DECEMBER 31, 2004
Gateway S&P 500
Fund Index
--------- -------
Total Holdings 323 500
Total S&P Holdings 169 500
Total Non-S&P Holdings 154 0
Dividend Yield (2) 2.58%(1) 1.71%
Average Market Cap, $B (2) 28.39 22.62
Weighted Average Price/Earnings Ratio (2) 22.90 23.99
Weighted Average Price/Book Ratio (2) 4.47 4.24
(1) This percentage represents the dividend yield of the equity securities in
the Gateway Fund, not the dividend yield of the Fund itself.
(2) Calculations obtained from Bloomberg, L.P.
PORTFOLIO SECTOR WEIGHTING
% OF COMMON STOCKS
AS OF DECEMBER 31, 2004
[BAR CHART]
5
Gateway Fund S&P 500 Index
Basic Materials 5.5% 3.7%
Commercial Services 1.6% 2.0%
Consumer Cyclical 7.9% 8.5%
Consumer Non-Cyclical 9.5% 8.2%
Consumer Services 1.7% 5.4%
Energy 7.3% 7.0%
Financial 26.6% 24.1%
Health Care 10.7% 12.5%
Industrials 4.9% 3.1%
Technology 15.0% 17.5%
Telecommunications 4.7% 3.3%
Transportation 0.4% 1.8%
Utilities 4.2% 2.9%
GATEWAY FUND
LETTER TO SHAREHOLDERS
By taking advantage of this modeling technology, the Fund is able to draw from a
larger universe of equities, own a smaller number of stock positions and
exercise greater flexibility with respect to portfolio considerations such as
improved tax efficiency. As a result of the portfolio transition from its former
pure indexed approach, the number of stocks held was reduced to 323 holdings as
of December 31, 2004 and a higher dividend yield was achieved. However, the
change did not affect the Fund's investment objective or its index-option-based
risk management strategy, which remains the Fund's most distinguishing feature
and its primary source of return.
The transition to this more flexible common stock portfolio approach was not
without cost to the Fund, although the Board of Trustees and management firmly
believe that the ongoing benefits to shareholders far outweigh the transitional
costs. These one-time costs included increased brokerage commissions and
custodian transaction charges and a reduction to the Fund's capital loss
carryforward. The transition also resulted in a significantly higher portfolio
turnover ratio of 71% for 2004. It is anticipated that the Fund's portfolio
turnover ratio will return to a more historically normal level in subsequent
years.
2005 PERSPECTIVE
The Fund applies its hedging techniques in a consistent and disciplined manner
seeking to deliver investment performance that offers an efficient trade-off
between risk and reward. A continuation of market conditions prevailing at the
end of 2004 may keep option premium levels suppressed well into 2005. If this is
the case, call options, although muted, will continue to provide incremental
return potential. Concurrently, hedging with low cost put options in the face of
potential market risk may prove to be prudent. Fund investors, therefore, would
continue to earn option premiums while enjoying the benefits of downside
protection against a sharp market decline over a short period of time, even if
the market stalls.
There are, however, factors that have the potential to increase market
volatility and widen the current narrow trading range, including further
interest rate hikes, inflationary fears, terrorism concerns and global market
developments. Rising uncertainty in the market can be of benefit since increased
volatility translates into higher option premium cash flows that can be captured
by the Fund. In either scenario, we believe the Gateway Fund continues to offer
an attractive alternative to other low-risk investments and can be a valuable
addition to a well-diversified portfolio.
We 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 /s/ Patrick Rogers, CFA
- ------------------ -----------------------
Walter G. Sall Patrick Rogers, CFA
Chairman Portfolio Manager
6
GATEWAY FUND
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004
COMMON STOCKS - 98.9%
SHARES BASIC MATERIALS - 5.5% VALUE (000's)
- ------ ---------------------- -------------
179,650 3M Co. $ 14,744
133,670 Alcoa Inc. 4,200
40,050 Bowater Incorporated 1,761
71,550 CONSOL Energy Inc. 2,937
469,448 Dow Chemical Company 23,242
456,900 E. I. du Pont de Nemours and Company 22,411
133,100 Eastman Chemical Company 7,684
35,126 International Paper Company 1,475
219,450 Lubrizol Corporation 8,089
161,350 Lyondell Chemical Company 4,666
12,125 MeadWestvaco Corporation 411
20,550 Nucor Corporation 1,076
113,650 Olin Corporation 2,503
158,950 Packaging Corporation of America 3,743
318,250 RPM International, Inc. 6,257
290,600 Sonoco Products Company 8,616
60,700 USEC Inc. 588
----------
114,403
----------
COMMERCIAL SERVICES - 1.7%
9,750 Apollo Group, Inc. - Class A * 787
151,250 Automatic Data Processing, Inc. 6,708
30,600 Career Education Corporation * 1,224
40,250 Catalina Marketing Corporation 1,192
106,200 Cendant Corporation 2,483
48,900 Cognizant Technology Solutions Corporation - Class A * 2,070
100,050 Electronic Data Systems Corporation 2,311
11,800 FactSet Research Systems Inc. 689
23,550 Fair Isaac Corporation 864
68,019 First Data Corporation 2,893
33,050 IAC/InterActiveCorp * 913
37,200 Omnicom Group Inc. 3,137
98,500 Paychex, Inc. 3,357
47,350 Reuters Group PLC - ADR 2,034
280,150 ServiceMaster Company 3,863
70,850 StarTek, Inc. 2,016
----------
36,541
----------
CONSUMER CYCLICAL - 7.7%
122,400 Abercrombie & Fitch Co. - Class A 5,747
42,700 Aeropostale, Inc. * 1,257
70,600 American Eagle Outfitters, Inc. 3,325
109,350 Best Buy Co., Inc. 6,498
15,250 CarMax, Inc. * 474
21,400 CDW Corporation 1,420
See accompanying notes to financial statements.
7
GATEWAY FUND
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004
SHARES VALUE (000's)
- ------- -------------
CONSUMER CYCLICAL (CONTINUED)
70,900 Chico's FAS, Inc. * $ 3,228
68,950 Christopher & Banks Corporation 1,272
50,800 Claire's Stores, Inc. 1,080
7,750 Coach, Inc. * 437
463,100 Delphi Corporation 4,177
26,900 Eaton Corporation 1,947
36,750 Fastenal Company 2,262
121,650 Foot Locker, Inc. 3,276
271,663 Ford Motor Company 3,977
42,600 Furniture Brands International, Inc. 1,067
176,750 Gap, Inc. 3,733
357,550 General Motors Corporation 14,323
36,550 Gentex Corporation 1,353
75,250 Genuine Parts Company 3,316
424,250 Home Depot, Inc. 18,132
38,000 Hot Topic, Inc. * 653
25,800 J. C. Penney Company, Inc. 1,068
221,850 Limited Brands 5,107
15,550 Longs Drug Stores Corporation 429
60,350 Lowe's Companies, Inc. 3,476
167,050 May Department Stores Company 4,911
134,400 Maytag Corporation 2,836
81,350 Michaels Stores, Inc. 2,438
69,550 Nordstrom, Inc. 3,250
14,200 Overstock.com, Inc. * 980
46,350 Pacific Sunwear of California, Inc. * 1,032
53,250 Pep Boys - Manny, Moe, & Jack 909
213,100 Pier 1 Imports, Inc. 4,198
61,250 Ross Stores, Inc. 1,768
65,350 Sears, Roebuck and Co. 3,335
14,850 Superior Industries International, Inc. 431
95,500 Talbots, Inc. 2,600
33,350 TJX Companies, Inc. 838
28,850 Urban Outfitters, Inc. * 1,281
610,850 Wal-Mart Stores, Inc. 32,265
71,000 Whirlpool Corporation 4,914
---------
161,020
---------
CONSUMER NON-CYCLICAL - 9.4%
311,550 Albertson's, Inc. 7,440
802,800 Altria Group, Inc. 49,051
98,950 Avon Products, Inc. 3,829
385,150 Coca-Cola Company 16,034
156,150 Colgate-Palmolive Company 7,988
See accompanying notes to financial statements.
8
GATEWAY FUND
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004
SHARES VALUE (000's)
- ------- -------------
CONSUMER NON-CYCLICAL (CONTINUED)
143,150 ConAgra Foods, Inc. $ 4,216
210,850 Diageo PLC - ADR 12,204
142,250 Gillette Company 6,370
183,500 Kimberly-Clark Corporation 12,076
171,100 Loews Corporation - Carolina Group 4,953
367,100 Newell Rubbermaid Inc. 8,880
26,150 Nu Skin Enterprises, Inc. - Class A 664
96,480 PepsiCo, Inc. 5,036
540,900 Procter & Gamble Company 29,793
363,450 Sara Lee Corporation 8,774
820,550 Tupperware Corporation 17,002
177,975 Vector Group Ltd. 2,960
2,250 Whole Foods Market, Inc. 214
----------
197,484
----------
CONSUMER SERVICES - 1.8%
33,300 Callaway Golf Company 450
6,100 Clear Channel Communications, Inc. 204
63,700 Eastman Kodak Company 2,054
23,450 GTECH Holdings Corporation 609
64,400 International Game Technology 2,214
20,300 Mandalay Resort Group 1,430
54,200 Nautilus Group, Inc. 1,310
21,550 Polaris Industries Inc. 1,466
71,750 R. R. Donnelley & Sons Company 2,532
16,950 Rank Group PLC - ADR 176
724,550 Regal Entertainment Group - Class A 15,034
183,700 Sirius Satellite Radio Inc. * 1,405
75,550 Standard Register Company 1,067
123,050 Time Warner Inc. * 2,392
33,741 Viacom Inc. - Class B 1,228
74,600 Walt Disney Company 2,074
36,950 XM Satellite Radio Holdings Inc. - Class A * 1,390
----------
37,035
----------
ENERGY - 7.2%
500,964 ChevronTexaco Corporation 26,306
54,381 ConocoPhillips 4,722
87,300 Diamond Offshore Drilling, Inc. 3,496
63,050 ENSCO International Incorporated 2,001
1,314,132 Exxon Mobil Corporation 67,362
177,850 Halliburton Company 6,979
215,850 Kerr-McGee Corporation 12,474
33,250 Patterson-UTI Energy, Inc. 647
110,750 Schlumberger Limited 7,415
See accompanying notes to financial statements.
9
GATEWAY FUND
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004
SHARES VALUE (000's)
- ------- -------------
ENERGY (CONTINUED)
16,050 Shell Transport & Trading Company PLC - ADR $ 825
32,300 Smith International, Inc. * 1,758
294,050 Tidewater Inc. 10,471
69,550 Total SA - ADR 7,639
---------
152,095
---------
FINANCIAL - 26.3%
82,050 A. G. Edwards, Inc. 3,545
40,250 ACE Limited 1,721
68,300 Allstate Corporation 3,532
205,950 American Home Mortgage Investment Corp. 7,054
455,686 American International Group, Inc. 29,925
122,100 Aon Corporation 2,913
192,250 Arthur J. Gallagher & Co. 6,248
1,156,780 Bank of America Corporation 54,357
57,550 Capitol Federal Financial 2,072
75,475 Charles Schwab Corporation 903
27,250 Chicago Mercantile Exchange 6,232
2,700 Chubb Corporation 208
1,352,615 Citigroup Inc. 65,169
43,000 Commerce Bancorp, Inc. 2,769
221,250 Converium Holding AG - ADR 1,027
84,548 Countrywide Financial Corporation 3,129
434,600 Crescent Real Estate Equities Company 7,936
49,100 Equity Office Properties Trust 1,430
161,700 Fannie Mae 11,515
162,850 Fidelity National Financial, Inc. 7,437
204,400 First Industrial Realty Trust, Inc. 8,325
2,382,336 General Electric Company 86,955
81,700 Glimcher Realty Trust 2,264
58,900 Goldman Sachs Group, Inc. 6,128
69,300 Hartford Financial Services Group, Inc. 4,803
61,850 Health Care REIT, Inc. 2,360
135,400 Hospitality Properties Trust 6,228
649,200 HRPT Properties Trust 8,329
263,200 HSBC Holdings PLC - ADR 22,409
10,000 Jefferies Group, Inc. 403
994,077 JPMorgan Chase & Co. 38,779
73,300 Legg Mason, Inc. 5,370
52,250 Liberty Property Trust 2,257
127,850 Lincoln National Corporation 5,968
386,200 Lloyds TSB Group PLC - ADR 14,208
295,100 Marsh & McLennan Companies, Inc. 9,709
7,800 MBNA Corporation 220
See accompanying notes to financial statements.
10
GATEWAY FUND
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004
SHARES VALUE (000's)
- ------- -------------
FINANCIAL (CONTINUED)
53,650 Mercury General Corporation $ 3,215
99,350 Merrill Lynch & Co., Inc. 5,938
267,150 Morgan Stanley 14,832
174,850 Nationwide Health Properties, Inc. 4,153
284,400 New York Community Bancorp, Inc. 5,850
19,150 Newcastle Investment Corporation 609
150,557 Regions Financial Corporation 5,358
398,683 U. S. Bancorp 12,487
211,350 Unitrin, Inc. 9,606
309,759 Wachovia Corporation 16,293
254,900 Waddell & Reed Financial, Inc. - Class A 6,090
125,900 Washington Mutual, Inc. 5,323
295,450 Wells Fargo & Company 18,362
23,750 XL Capital Ltd. - Class A 1,844
---------
553,797
---------
HEALTH CARE - 10.5%
282,250 Abbott Laboratories 13,167
6,800 Aetna Inc. 848
94,227 Amgen Inc. * 6,045
13,200 Biogen Idec Inc. * 879
17,750 Boston Scientific Corporation * 631
1,352,900 Bristol-Myers Squibb Company 34,661
11,600 Cardinal Health, Inc. 675
61,250 Caremark Rx, Inc. * 2,415
20,750 Coventry Health Care, Inc. * 1,101
233,100 Eli Lilly and Company 13,228
8,300 Genentech, Inc. * 452
22,250 Gilead Sciences, Inc. * 779
126,450 GlaxoSmithKline PLC - ADR 5,992
13,950 Guidant Corporation 1,006
4,800 ImClone Systems Incorporated * 221
606,822 Johnson & Johnson 38,485
78,500 Medtronic Inc. 3,899
18,300 Mentor Corporation 617
733,400 Merck & Co., Inc. 23,572
6,150 Omnicare, Inc. 213
6,400 Onyx Pharmaceuticals, Inc. * 207
17,250 OSI Pharmaceuticals, Inc. * 1,291
1,633,800 Pfizer Inc. 43,933
98,950 Schering-Plough Corporation 2,066
93,700 Select Medical Corporation 1,649
124,150 UnitedHealth Group Incorporated 10,929
17,900 Universal Health Services, Inc. - Class B 797
See accompanying notes to financial statements.
11
GATEWAY FUND
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004
SHARES VALUE (000's)
- ------- -------------
HEALTH CARE (CONTINUED)
34,550 WellPoint Inc. * $ 3,973
181,800 Wyeth 7,743
----------
221,474
----------
INDUSTRIALS - 4.7%
21,950 Black & Decker Corporation 1,939
139,500 Briggs & Stratton Corporation 5,800
106,950 Caterpillar Inc. 10,429
2,600 Cummins, Inc. 218
31,900 Deere & Company 2,373
156,600 Emerson Electric Co. 10,978
114,550 Hubbell Incorporated - Class B 5,991
6,450 Illinois Tool Works Inc. 598
15,950 Ingersoll-Rand Company 1,281
30,000 Parker-Hannifin Corporation 2,272
89,750 Pentair, Inc. 3,910
56,900 Snap-on Incorporated 1,955
196,300 SPX Corporation 7,864
126,800 Stanley Works 6,212
94,900 Timken Company 2,469
299,003 Tyco International Ltd. 10,686
116,750 United Technologies Corporation 12,066
289,500 Waste Management, Inc. 8,668
114,600 York International Corporation 3,958
----------
99,667
----------
TECHNOLOGY - 14.9%
19,650 Adobe Systems Incorporated 1,233
52,650 ADTRAN, Inc. 1,008
25,275 Advanced Micro Devices, Inc. * 557
24,925 Agilent Technologies, Inc. * 601
29,500 Akamai Technologies, Inc. * 384
92,800 Amazon.com, Inc. * 4,110
121,550 Analog Devices, Inc. 4,488
46,100 Apple Computer, Inc. * 2,969
281,700 Applied Materials, Inc. * 4,817
52,400 Ask Jeeves, Inc. * 1,402
141,250 BEA Systems, Inc. * 1,251
194,852 Boeing Company 10,087
78,650 Broadcom Corporation - Class A * 2,539
22,000 CheckFree Corp. * 838
888,625 Cisco Systems, Inc. * 17,150
190,275 Corning Incorporated * 2,240
9,750 Cree, Inc. * 391
137,250 Dell Inc. * 5,784
See accompanying notes to financial statements.
12
GATEWAY FUND
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004
SHARES VALUE (000's)
- ------- ------------
TECHNOLOGY (CONTINUED)
154,950 eBay Inc. * $ 18,018
33,850 F5 Networks, Inc. * 1,649
6,550 Goodrich Corporation 214
14,000 Google Inc. - Class A * 2,703
3,100 Harris Corporation 192
422,005 Hewlett-Packard Company 8,849
292,500 Honeywell International Inc. 10,357
41,550 InfoSpace, Inc. * 1,976
1,277,578 Intel Corporation 29,883
245,850 International Business Machines Corporation 24,236
8,950 International Rectifier Corporation * 399
40,300 Internet Security Systems, Inc. * 937
48,900 Intersil Corporation - Class A 819
65,050 JDS Uniphase Corporation * 206
20,650 Lam Research Corporation * 597
45,700 Linear Technology Corporation 1,771
678,190 Lucent Technologies Inc. * 2,550
45,950 Macromedia, Inc. * 1,430
87,700 Maxim Integrated Products, Inc. 3,718
32,650 McAfee Inc. * 945
4,300 Mercury Interactive Corporation * 196
110,550 Microchip Technology Incorporated 2,947
2,198,900 Microsoft Corporation 58,733
175,571 Motorola, Inc. 3,020
60,250 National Semiconductor Corporation 1,081
111,450 Nokia Corporation - ADR 1,746
8,400 NVIDIA Corporation * 198
10,550 OmniVision Technologies, Inc. * 194
789,348 Oracle Corporation * 10,830
34,450 PeopleSoft, Inc. * 912
18,900 Plantronics, Inc. 784
16,750 PMC-Sierra, Inc. * 188
24,450 Priceline.com Incorporated * 577
345,600 QUALCOMM Incorporated 14,653
35,900 Raytheon Company 1,394
24,800 Red Hat, Inc. * 331
53,000 RF Micro Devices, Inc. * 362
9,400 Shanda Interactive Entertainment Ltd. - ADR * 399
94,300 Siebel Systems, Inc. * 990
14,650 Siemens AG - ADR 1,240
5,950 Silicon Laboratories Inc. * 210
33,800 Sohu.com Inc. * 599
31,300 Sonus Networks, Inc. * 179
See accompanying notes to financial statements.
13
GATEWAY FUND
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004
SHARES VALUE (000's)
- ------- ------------
TECHNOLOGY (CONTINUED)
97,850 Symantec Corporation * $ 2,521
22,900 Taser International, Inc. * 723
366,900 Texas Instruments Incorporated 9,033
18,650 Travelzoo Inc. * 1,780
17,200 United Online, Inc. * 198
28,200 UTStarcom, Inc. * 625
105,500 VeriSign, Inc. * 3,536
72,126 VERITAS Software Corporation * 2,059
49,950 WebEx Communications, Inc. * 1,188
94,000 Xilinx, Inc. 2,787
350,250 Yahoo! Inc. * 13,197
---------
312,708
---------
TELECOMMUNICATIONS - 4.6%
108,571 AT&T Corp. 2,069
530,750 BellSouth Corporation 14,750
547,350 Citizens Communications Company 7,548
42,900 Nextel Communications, Inc. - Class A * 1,287
1,252,556 SBC Communications Inc. 32,278
168,150 Sprint Corporation 4,179
39,350 TDC A/S - ADR 837
64,300 Telstra Corporation Ltd. - ADR 1,231
819,668 Verizon Communications Inc. 33,205
---------
97,384
---------
TRANSPORTATION - 0.5%
100,250 AMR Corporation * 1,098
34,800 GATX Corporation 1,028
59,900 JetBlue Airways Corporation * 1,391
71,200 United Parcel Service, Inc. - Class B 6,085
---------
9,602
---------
UTILITIES - 4.1%
84,400 Ameren Corporation 4,232
732,200 Atmos Energy Corporation 20,026
18,500 Consolidated Edison, Inc. 809
333,500 Duke Energy Corporation 8,448
264,350 Duquesne Light Holdings Inc. 4,983
296,050 Great Plains Energy Incorporated 8,964
59,000 National Fuel Gas Company 1,672
159,800 NICOR Inc. 5,903
210,650 OGE Energy Corp. 5,584
95,500 ONEOK, Inc. 2,714
272,350 Pepco Holdings, Inc. 5,807
65,303 Progress Energy, Inc. 2,954
65,950 Public Service Enterprise Group Inc. 3,414
See accompanying notes to financial statements.
14
GATEWAY FUND
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004
SHARES VALUE (000's)
- ------ -------------
UTILITIES (CONTINUED)
3,900 UIL Holdings Corporation $ 200
414,200 United Utilities PLC - ADR 10,173
39,400 Vectren Corporation 1,056
------------
86,939
------------
Total common stocks (cost $1,746,020) 2,080,149
------------
CONTRACTS
PUT OPTIONS - 0.2%
2,019 On S&P 500 Index expiring January 22, 2005 at 1075 50
5,094 On S&P 500 Index expiring February 19, 2005 at 1075 688
3,158 On S&P 500 Index expiring February 19, 2005 at 1100 647
4,474 On S&P 500 Index expiring March 19, 2005 at 1075 1,521
2,245 On S&P 500 Index expiring March 19, 2005 at 1100 1,078
------------
Total put options (cost $6,954) 3,984
------------
REPURCHASE AGREEMENT - 3.8% **
1.60% repurchase agreement with U. S. Bank, N. A.
dated December 31, 2004, due January 3, 2005 (repurchase proceeds 80,012
$80,023) ------------
Total common stocks, put options and repurchase agreement - 102.9% 2,164,145
------------
CALL OPTIONS - (3.2%) ***
(2,475) On S&P 500 Index expiring January 22, 2005 at 1175 (10,148)
(2,096) On S&P 500 Index expiring January 22, 2005 at 1200 (4,402)
(2,847) On S&P 500 Index expiring February 19, 2005 at 1175 (13,409)
(3,555) On S&P 500 Index expiring February 19, 2005 at 1200 (10,345)
(3,866) On S&P 500 Index expiring March 19, 2005 at 1175 (20,759)
(2,151) On S&P 500 Index expiring March 19, 2005 at 1200 (7,830)
------------
Total call options outstanding (premiums received $61,283) (66,893)
------------
OTHER ASSETS AND LIABILITIES, NET - 0.3% 6,683
------------
NET ASSETS - 100.0% $ 2,103,935
============
* Non-income producing.
** Repurchase agreement fully collateralized by U. S. Government
Agency obligations.
*** The $2,080,149,000 aggregate value of common stocks covers
outstanding call options.
ADR - American Depository Receipt
Common stocks are grouped by sector.
See accompanying notes to financial statements.
15
GATEWAY FUND
STATEMENT OF ASSETS AND LIABILITIES -- DECEMBER 31, 2004
(000's)
ASSETS:
Common stocks, at value (cost $1,746,020) $ 2,080,149
Put options, at value (cost $6,954) 3,984
Repurchase agreement 80,012
Receivable for investments sold 7,191
Receivable for Fund shares sold 5,929
Dividends and interest receivable 3,866
Other assets 52
-----------
Total assets 2,181,183
-----------
LIABILITIES:
Call options outstanding, at value (premiums received $61,283) 66,893
Payable to custodian 7,191
Payable for Fund shares redeemed 2,357
Accrued distribution expenses 656
Accrued investment advisory and management fees 34
Other accrued expenses and liabilities 117
-----------
Total liabilities 77,248
-----------
NET ASSETS $ 2,103,935
===========
NET ASSETS CONSIST OF: $ 1,933,645
Paid-in capital 67
Undistributed net investment income (155,326)
Accumulated net realized loss on investment transactions 325,549
Net unrealized appreciation on investments -----------
Net assets $ 2,103,935
===========
FUND SHARES OUTSTANDING
(unlimited number of shares authorized, no par value) 86,530
===========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE $ 24.31
===========
See accompanying notes to finnancial statements.
16
GATEWAY FUND
STATEMENT OF OPERATIONS -- FOR THE YEAR ENDED DECEMBER 31, 2004
(000's)
INVESTMENT INCOME:
Dividends $ 40,819
Interest 732
Other income 121
---------
Total investment income 41,672
---------
EXPENSES:
Investment advisory and management fees 9,929
Distribution expenses 6,178
Professional fees 151
Trustees' fees 140
Registration fees 118
Custodian fees 109
Standard & Poor's licensing fees 100
Insurance expense 58
Other expenses 72
---------
Total expenses 16,855
---------
NET INVESTMENT INCOME 24,817
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
REALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS:
Common stocks 107,879
Put options expired and closed (60,563)
Call options expired and closed (41,143)
---------
Net realized gain on investment transactions 6,173
---------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON INVESTMENTS:
Common stocks 50,617
Put options 2,943
Call options 39,567
---------
Net change in unrealized appreciation/depreciation
on investments 93,127
---------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 99,300
---------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 124,117
=========
See accompanying notes to financial statements.
17
GATEWAY FUND
STATEMENTS OF CHANGES IN NET ASSETS
(000's)
Year Ended December 31,
-------------------------
2004 2003
----------- -----------
FROM OPERATIONS:
Net investment income $ 24,817 $ 10,279
Net realized gain (loss) on investment transactions 6,173 (128,222)
Net change in unrealized appreciation/depreciation on investments 93,127 249,831
----------- -----------
Net increase in net assets from operations 124,117 131,888
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (24,820) (10,278)
----------- -----------
FROM FUND SHARETRANSACT IONS:
Proceeds from shares sold 987,276 544,736
Net asset valueof share s issued in reinvestment of distributions
to share holders 21,112 9,123
Payments for shares redeemed (409,311) (338,356)
----------- -----------
Net increase in net assets from Fund shares transactions 599,077 215,503
----------- -----------
NET INCREASE IN NET ASSETS 698,374 337,113
NET ASSETS:
Beginning of year 1,405,561 1,068,448
----------- -----------
End of year $ 2,103,935 $ 1,405,561
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME $ 67 $ 70
=========== ===========
FUND SHARE TRANSACTIONS:
Shares sold 41,915 24,684
Shares issued in reinvestment of distributions to shareholders 867 397
Shares redeemed (17,372) (15,429)
----------- -----------
Net increase in Fund shares outstanding 25,410 9,652
Shares outstanding, beginning of year 61,120 51,468
----------- -----------
Shares outstanding, end of year 86,530 61,120
=========== ===========
See accompanying notes to financial statements.
18
GATEWAY FUND
FINANCIAL HIGHLIGHTS - PER SHARE DATA FOR A SHARE OUTSTANDING
THROUGHOUT EACH YEAR
Year Ended December 31,
-----------------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ----------- ----------- ----------- -----------
BEGINNING NET ASSET VALUE $ 23.00 $ 20.76 $ 21.98 $ 22.92 $ 23.67
----------- ----------- ----------- ----------- -----------
INVESTMENT OPERATIONS:
Net investment income 0.29 0.17 0.15 0.11 0.08
Net realized and unrealized gain (loss) 1.31 2.24 (1.22) (0.92) 1.49
----------- ----------- ----------- ----------- -----------
Total from investment operations 1.60 2.41 (1.07) (0.81) 1.57
----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS:
Dividends from net investment income (0.29) (0.17) (0.15) (0.11) (0.08)
Distributions from net realized gain -- -- -- (0.02) (2.24)
----------- ----------- ----------- ----------- -----------
Total distributions (0.29) (0.17) (0.15) (0.13) (2.32)
----------- ----------- ----------- ----------- -----------
ENDING NET ASSET VALUE $ 24.31 $ 23.00 $ 20.76 $ 21.98 $ 22.92
=========== =========== =========== =========== ===========
TOTAL RETURN 6.95% 11.61% (4.86%) (3.53%) 6.61%
ENDING NET ASSETS (000'S) $ 2,103,935 $ 1,405,561 $ 1,068,448 $ 1,285,131 $ 1,491,052
AVERAGE NET ASSETS RATIOS:
Total expenses 0.97% 0.97% 0.97% 0.97% 0.98%
Net investment income 1.42% 0.86% 0.66% 0.43% 0.33%
PORTFOLIO TURNOVER RATE 71% 5% 13% 18% 22%
See accompanying notes to financial statements.
19
GATEWAY FUND
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2004
1. ORGANIZATION AND 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 a diversified portfolio of common stocks and by
selling index call options. 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 (the
NYSE), 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, other
than option contracts, for which market quotations are not readily available or
in which trading has been suspended during the day, and option contracts for
which closing market quotations are not considered to reflect option contract
values as of the close of the NYSE, 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.
20
GATEWAY FUND
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2004
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, 2004, the components of distributable earnings on a tax basis
were as follows (000's):
Cost of common stocks and options $ 1,696,369
===========
Gross unrealized appreciation $ 342,294
Gross unrealized depreciation (21,423)
-----------
Net unrealized appreciation 320,871
Undistributed ordinary income 67
Capital loss carryforwards (150,648)
-----------
Distributable earnings $ 170,290
===========
The Fund's capital loss carryforwards expire December 31, 2011. For the year
ended December 31, 2004, the Fund utilized $36,041,000 of the capital loss
carryforwards to offset realized gains. 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 depreciation on open
option contracts at December 31, 2004. There were no differences between the
book basis and tax basis of distributions paid for the years ended December 31,
2004 and 2003.
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 under the
terms of a Management Agreement at an annual rate of 0.925% of average daily net
assets minus all distribution expenses. 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 by the Fund related to the sale and
distribution of its shares. In any year, distribution expenses cannot exceed
0.50% of average daily net assets. 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.
21
GATEWAY FUND
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2004
3. INVESTMENT TRANSACTIONS
For the year ended December 31, 2004, cost of purchases of investment securities
(excluding any short-term investments and U. S. government securities) totaled
$1,695,422,000 and proceeds from sales totaled $1,217,333,000.
The Fund may write (sell) call options on stock indexes in exchange for cash
(that is, the premium received) to enhance earnings on the portfolio securities.
However, using these call options 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 year
ended December 31, 2004, transactions in written options were as follows:
Contracts Premiums (000's)
--------- ----------------
Outstanding at December 31, 2003 12,982 $ 45,734
Options written 115,890 295,795
Options terminated in closing
purchase transactions (97,349) (251,657)
Options expired (14,533) (28,589)
------- ----------------
Outstanding at December 31, 2004 16,990 $ 61,283
======= ================
4. BANK LINE OF CREDIT
The Fund has an uncommitted $65 million bank line of credit to be used as a
temporary liquidity source for meeting redemption requests. Borrowings under
this arrangement, expiring October 31, 2005, bear interest at the bank's prime
rate minus 0.50%. There are no fees associated with maintaining this facility.
During the year ended December 31, 2004, there were no borrowings on this line
of credit.
5. COMMITMENTS AND CONTINGENCIES
The Fund indemnifies the Trustees and officers of the Trust for certain
liabilities that might arise from the performance of their duties to the Fund.
Additionally, in the normal course of business, the Fund enters into contracts
that contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these arrangements
is unknown, as this would involve future claims that may be made against the
Fund that have not yet occurred. However, based on experience, the Fund expects
the risk of loss to be remote.
6. TAX INFORMATION (UNAUDITED)
The Fund is required by subchapter M of the Internal Revenue Code of 1986, as
amended, to advise shareholders as to the federal income tax status of
distributions received during the Fund's fiscal year.
On December 30, 2004, the Fund declared and paid an ordinary income dividend of
$24,820,000 or $0.29 per share to shareholders of record as of December 29,
2004. For the year ended December 31, 2004, 100% of the dividends paid from
ordinary income are considered "qualified dividends" subject to a federal tax
rate of not more than 15% and 100% of the dividends paid qualified for the
dividends received deduction for corporations.
22
GATEWAY FUND
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of the
Gateway Fund of The Gateway Trust
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the Gateway Fund (the Fund) of The Gateway
Trust as of December 31, 2004, and the related statement of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended and the financial highlights for each of the
three years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights presented herein for each of the
years ended December 31, 2001 and 2000 were audited by other auditors who have
ceased operations. Those auditors expressed an unqualified opinion on these
financial highlights in their report dated January 17, 2002.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Fund's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and financial
highlights, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our procedures included confirmation of securities owned as of December 31,
2004, by correspondence with the custodian and brokers. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Gateway Fund of The Gateway Trust as of December 31, 2004, and the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and its financial highlights for each
of the three years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
Cincinnati, Ohio
January 18, 2005
ERNST & YOUNG LLP
23
GATEWAY FUND
FUND EXPENSES (UNAUDITED)
As a shareholder, you may incur two types of costs: (1) transaction costs,
including any transaction fees that you may be charged if you purchase or redeem
the Fund through certain financial institutions; and (2) ongoing costs,
including management fees, distribution fees (12b-1 fees) and other Fund
expenses. The example below is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds. The example is based on an
investment of $1,000 invested at the beginning of the period and held for the
six-month period indicated.
ACTUAL EXPENSES
The first line in the table below provides information about actual account
values and actual Fund expenses. You may use the information in this line,
together with the amount you invested, to estimate the expenses that you paid
over the period. Simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number in the first line under the heading entitled "Expenses Paid During
Period" to estimate the expenses you paid on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund to other mutual funds. To do so, compare this 5%
hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight ongoing
costs only and do not reflect any transaction costs charged by certain financial
institutions. Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different mutual funds. In addition, if you incurred transaction costs,
your costs would have been higher. Please refer to the Fund's prospectus for
additional information on applicability of transaction costs for the Fund.
Beginning Ending Expenses Paid
Account Value Account Value During Period
7/1/04 12/31/04 7/1/04 - 12/31/04*
------------- ------------- ------------------
Actual $ 1,000.00 $ 1,040.20 $ 4.97
Hypothetical (5% return before expenses) $ 1,000.00 $ 1,020.26 $ 4.93
* Expenses are equal to the Fund's annualized expense ratio of 0.97%,
multiplied by the average account value over the period, multiplied by
184/366 (to reflect the most recent fiscal half-year period).
24
GATEWAY FUND
MANAGEMENT INFORMATION - DECEMBER 31, 2004 (UNAUDITED)
THE FOLLOWING PROVIDES INFORMATION REGARDING EACH TRUSTEE WHO IS NOT AN
"INTERESTED PERSON" OF THE GATEWAY TRUST, AS DEFINED IN THE INVESTMENT COMPANY
ACT OF 1940.
JAMES M. ANDERSON, Cincinnati Children's Hospital Medical Center, 3333 Burnet
Avenue, Cincinnati, Ohio 45229; Trustee of The Gateway Trust since April 1997;
Cincinnati Children's Hospital Medical Center, President and Chief Executive
Officer since November 1996; Trustee of Cincinnati Children's Hospital Medical
Center; Director of Union Central Life; Director of the National Stock Exchange;
Chairman of the Board of the Cincinnati Branch of the Federal Reserve Bank of
Cleveland. Age 63.
STEFEN F. BRUECKNER, The Gateway Trust, Rookwood Tower, 3805 Edwards Road, Suite
600, Cincinnati, Ohio 45209; Trustee of The Gateway Trust since October 1992;
Humana, Inc. (insurance), Vice President - Market Operations since July 2001;
ProMutual Group (insurance), President and Chief Executive Officer from 1998 to
2000; Anthem Companies, Inc. (insurance), President and Chief Executive Officer
from 1995 to 1998. Age 55.
KENNETH A. DRUCKER, Sequa Corporation, 200 Park Avenue, New York, New York
10166; Trustee of The Gateway Trust since April 1986; Sequa Corporation
(industrial equipment), Vice President and Treasurer since 1987; Director of
Formica Corporation. Age 59.
BEVERLY J. FERTIG, The Gateway Trust, Rookwood Tower, 3805 Edwards Road, Suite
600, Cincinnati, Ohio 45209; Trustee of The Gateway Trust since September 1988;
National Association of Securities Dealers, Inc., Arbitrator since January 1992.
Age 74.
R. S. (DICK) HARRISON, 4040 Mt. Carmel Road, Cincinnati, Ohio 45244; Trustee of
The Gateway Trust since April 1996; Retired; Director of Anderson Bank Company
of Cincinnati, Ohio. Age 73.
THE FOLLOWING PROVIDES INFORMATION REGARDING EACH TRUSTEE WHO IS AN "INTERESTED
PERSON" OF THE GATEWAY TRUST, AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940.
EACH IS A DIRECTOR, OFFICER AND EMPLOYEE OF THE TRUST'S ADVISER, AND AN OFFICER
AND A TRUSTEE OF THE TRUST.
WALTER G. SALL, Gateway Investment Advisers, L.P., Rookwood Tower, 3805 Edwards
Road, Suite 600, Cincinnati, Ohio 45209; Chairman of The Gateway Trust since
December 1977 and Trustee of The Gateway Trust since April 1986; Gateway
Investment Advisers, L.P., Chairman and Chief Executive Officer since 1995;
Director of Melmedica Children's Healthcare, Inc.; Director of Anderson Bank
Company of Cincinnati, Ohio. Age 60.
J. PATRICK ROGERS, Gateway Investment Advisers, L.P., Rookwood Tower, 3805
Edwards Road, Suite 600, Cincinnati, Ohio 45209; President of The Gateway Trust
since January 1997 and Trustee of The Gateway Trust since December 1998;
Co-Portfolio Manager of the Gateway Fund from 1994 to 1997; Portfolio Manager of
the Gateway Fund since 1997; Gateway Investment Advisers, L.P., President since
1995. Age 40.
25
GATEWAY FUND
MANAGEMENT INFORMATION - DECEMBER 31, 2004 (UNAUDITED)
THE FOLLOWING PROVIDES INFORMATION REGARDING EACH OFFICER OF THE GATEWAY TRUST
AS DEFINED BY THE INVESTMENT COMPANY ACT OF 1940.
DEBRA M. BROWN, Brown & Associates, 20 Oak Street, Suite 200, Beverly Farms,
Massachusetts 01915; Chief Compliance Officer of The Gateway Trust since
September 2004; Brown & Associates (compliance consulting firm), Principal since
2000. Age 42.
GARY H. GOLDSCHMIDT, Gateway Investment Advisers, L.P., Rookwood Tower, 3805
Edwards Road, Suite 600, Cincinnati, Ohio 45209; Vice President and Treasurer of
The Gateway Trust since April 2000; Gateway Investment Advisers, L.P., Chief
Financial Officer since January 2004 and Controller from 1999 to 2004;
Countrywide Fund Services, Inc. (mutual fund service provider), Vice President
and Financial Reporting Manager from 1993 to 1999. Age 42.
GEOFFREY KEENAN, Gateway Investment Advisers, L.P., Rookwood Tower, 3805 Edwards
Road, Suite 600, Cincinnati, Ohio 45209; Vice President of The Gateway Trust
since April 1996; Gateway Investment Advisers, L.P., Executive Vice President
and Chief Operating Officer since December 1995. Age 46.
DONNA M. SQUERI, Gateway Investment Advisers, L.P., Rookwood Tower, 3805 Edwards
Road, Suite 600, Cincinnati, Ohio 45209; Secretary of The Gateway Trust since
October 1995; Gateway Investment Advisers, L.P., General Counsel since December
1995 and Chief Compliance Officer since September 2004. Age 45.
The Statement of Additional Information includes additional information
regarding the Trustees and is available without charge, upon request, by calling
800.354.6339.
26
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 2. CODE OF ETHICS.
(a) As of the end of the period covered by this report, the registrant has
adopted a code of ethics that applies to the registrant's principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, regardless of whether these
individuals are employed by the registrant or a third party.
(b) For purposes of this Item, the term "code of ethics" means written
standards that are reasonably designed to deter wrongdoing and to promote:
(1) Honest and ethical conduct, including the ethical handling of actual
or apparent conflicts of interest between personal and professional
relationships;
(2) Full, fair, accurate, timely, and understandable disclosure in
reports and documents that a registrant files with, or submits to,
the Commission and in other public communications made by the
registrant;
(3) Compliance with applicable governmental laws, rules, and
regulations;
(4) The prompt internal reporting of violations of the code to an
appropriate person or persons identified in the code; and
(5) Accountability for adherence to the code.
(c) Amendments: During the period covered by this report, the code of ethics
was amended in order to substitute the "Chief Compliance Officer of the Adviser"
in place of the term "compliance officer of the Trust". Also added were
provisions to include the Trust's Chief Compliance Officer for review and
reporting purposes. The reasons these amendments were made was to incorporate
the newly appointed Trust and Adviser Chief Compliance Officers into the
Registrant's code of ethics.
(d) Waivers: During the period covered by this report, the registrant had not
granted a waiver, including an implicit waiver, from a provision of the code of
ethics.
(e) Not applicable
(f) A copy of the registrant's amended and restated code of ethics is filed as
an exhibit herewith. See Item 12(a)(1).
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a) The registrant's board of trustees has determined that Kenneth A. Drucker
is an audit committee financial expert. He is independent for purposes of this
Item 3.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES
FY 2004 $ 51,200
FY 2003 $ 45,600
(b) AUDIT-RELATED FEES
Registrant Adviser
---------- -------
FY 2004 $ 0 $ 7,900
FY 2003 $ 0 $ 7,300
Nature of Fees. Audit-related services for the Adviser are
associated with examination of internal controls related to the
Adviser's transfer agent and registrar functions for SEC Rule
17Ad-13 filing.
(c) TAX FEES
Registrant Adviser
---------- -------
FY 2004 $ 10,626 $ 0
FY 2003 $ 4,100 $ 0
Nature of Fees. Tax services for registrant included tax compliance
and tax return reviews in 2004 and 2003.
(d) ALL OTHER FEES
Registrant Adviser
---------- -------
FY 2004 $ 0 $1,222
FY 2003 $ 0 $ 0
Nature of Fees. Other services for Adviser are associated with a
sales and use tax refund review engagement.
(e) (1) AUDIT COMMITTEE'S PRE-APPROVAL POLICIES
Beginning with non-audit service contracts entered into on or after
May 6, 2003, the registrant's Audit Committee is required to
pre-approve all audit services and, when appropriate, any non-audit
services (including audit-related, tax and all other services) to
the registrant. The registrant's Audit Committee is also required to
pre-approve, when appropriate, any non-audit services (including
audit-related, tax and all other services) to its adviser, or any
entity controlling, controlled by or under common control with the
adviser that provides ongoing services to the registrant to the
extent that the services are determined to have a direct impact on
the operations or financial reporting of the registrant. The
registrant's Audit Committee has established a policy of requiring
specific pre-approval of audit and non-audit services on an
engagement-by-engagement basis.
(2) PERCENTAGES OF FY 2004 NON-AUDIT SERVICES APPROVED BY THE
AUDIT COMMITTEE
Audit-Related Fees 100%
Tax Fees 100%
All Other Fees 100%
(f) During the audit of registrant's financial statements for the most
recent fiscal year, less than 50% of the hours expended on the principal
accountant's engagement were attributed to work performed by persons other
than the principal accountant's full-time, permanent employees.
(g) The aggregate non-audit fees billed by the registrant's accountant
for services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under
common control with the adviser that provides ongoing services to the
registrant are as follows:
Registrant Adviser
---------- -------
FY 2004 $ 10,626 $ 9,122
FY 2003 $ 4,100 $ 7,300
(h) Not applicable. All non-audit services to the registrant's
investment adviser were pre-approved by the Audit Committee for FY
2004.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
The 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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
Not applicable
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on an evaluation of the registrant's disclosure controls and
procedures as of February 22, 2005, the disclosure controls and procedures are
reasonably designed to ensure that the information required in filings on Form
N-CSR is recorded, processed, summarized, and reported on a timely basis.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's second fiscal quarter of the
period covered by this report that have materially affected, or are reasonably
likely to materially affect, the registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
(a)(1) EX-99.CODE ETH. Registrant's code of ethics that is subject to the
disclosure required by Item 2 is filed herewith.
(a)(2) EX-99.CERT. Certifications required by Rule 30a-2(a) of the Investment
Company Act of 1940 are filed herewith.
(b) EX-99.906 CERT. Certification 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 February 22, 2005
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 February 22, 2005
By /s/ Gary H. Goldschmidt
-----------------------------
Gary H. Goldschmidt
Vice President and Treasurer
Date February 22, 2005