File No. 33-72416
As filed with the Securities and Exchange Commission on
April 16, 1997
===================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. __
Post-Effective Amendment No. _4_
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 4
BRIDGEWAY FUND, INC.
(Exact name of Registrant as Specified in Charter)
5650 Kirby Drive, Suite 141, Houston, Texas 77005-2443
(Address of Principal Executive Office)
(713) 661-3500
(Registrant's Telephone Number, Including Area Code)
JOHN N.R. MONTGOMERY, PRESIDENT
Bridgeway Capital Management, Inc.
5650 Kirby Drive, Suite 141, Houston, Texas 77005-2443
(Name and Address of Agent for Service)
Approximate Date of Proposed Offering: As soon as practical after the
effective date of this Registration Statement under the Securities Act
of 1933.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Pursuant to Section 24(f) of the Investment Company Act of 1940 and
Rule 24f-2 thereunder, the Registrant hereby declares that an
indefinite number of its shares of beneficial interest is being
registered by this Registration Statement.
=================================================================
It is proposed that this filing will become effective
[ ] immediately upon filing pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
[x] 75 days after filing pursuant to paragraph (a) (2)
<PAGE>
BRIDGEWAY
FUND, INC.
ULTRA-SMALL COMPANY
PORTFOLIO
AGGRESSIVE GROWTH
PORTFOLIO
SOCIAL RESPONSIBILITY
PORTFOLIO
PROSPECTUS
June 30, 1997
BRIDGEWAY CAPITAL MANAGEMENT, INC.
INVESTMENT ADVISOR
5650 KIRBY DRIVE, SUITE 141
HOUSTON, TX 77005-2443
713 661-3265
800-661-3550
[LOGO GRAPHIC OMITTED]
B R I D G E W A Y
TABLE OF CONTENTS
Table of Fees and
Expenses...............................................2
Risk Factors...........................................3
Investment Objectives and Policies.....................6
Disclaimers............................................9
Reimbursement Fees for Purchases and Redemptions.......9
Principal Investment Restrictions......................10
Management of the Fund.................................11
Code of Ethics.........................................12
Distribution of Fund Shares............................12
How to Purchase Shares.................................13
Net Asset Value........................................14
How to Redeem Shares...................................14
Exchange Privilege.....................................15
Dividends and Tax Status...............................16
Performance Information................................16
General Information....................................16
PROSPECTUS June 30, 1997
BRIDGEWAY
FUND, INC.
Bridgeway Fund, Inc. (the "Fund") is a no-load, diversified,
open-end management investment company commonly referred
to as a mutual fund. The Fund is organized as a series fund and
has five portfolios, the Bridgeway Ultra-Small
Company Portfolio, Bridgeway Ultra-Small Index Portfolio,
Bridgeway Aggressive Growth Portfolio, Bridgeway Social
Responsibility Portfolio, and Bridgeway 30 Industrials Portfolio. All
five have an investment objective of providing total return
(capital appreciation and current income), but
the first three primarily target capital appreciation. All are
intended as long-term investments. THE FUND
STRONGLY DISCOURAGES SHORT-TERM
TRADING OF ITS SHARES. The Aggressive Growth
Portfolio uses more aggressive investment techniques, while the
Ultra-Small Company and Ultra-Small Index Portfolios exhibit
higher than average short-term volatility. There can be no
assurance that the Portfolios will achieve their investment
objectives. These Portfolios will pursue their objectives by
investing primarily in a diversified portfolio of common stocks. The
Aggressive Growth and Social Responsibility Portfolios
may use leverage (borrowing or derivaties),
may hedge risk with short sales, and may use
other investment techniques. See: "Risk Factors" (page 3) and
Summary of Techniques Used (page 4). Shares of each portfolio
are sold at their net asset value without a sales charge and there
are no distribution charges paid by the Fund.
This prospectus concisely sets forth the information about the
Fund that a prospective investor should seek to learn before
investing. Investors are advised to read this prospectus and
retain it for future reference. A Statement of
Additional Information, dated June 30, 1977 has
been filed with the Securities and Exchange
Commission and is available without any charge by
writing or calling the Fund at the address or phone number listed
on the back cover. The Statement of Additional Information is
incorporated into this prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF FEES AND EXPENSES
(for each portfolio)
<TABLE>
<CAPTION>
ULTRA-SMALL ULTRA-SMALL AGGRESSIVE SOCIAL BRIDGEWAY
SHAREHOLDER TRANSACTION EXPENSES: COMPANY INDEX GROWTH RESPONSIBILITY 30 INDUSTRIALS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchase None None None None None
Maximum Sales Load Imposed on
Reinvested Distributions None None None None None
Deferred Sales Load None None None None None
Redemption Fees None None None None None
Purchase Reimbursement to Portfolio# None 1.5% None None 0.07%
Redemption Reimbursement in Down Markets# None 2.0% None None 2.0%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management Fees (after waivers)* 0.00% 0.50% 0.00% 0.00% 0.00%
12b-1 Fees 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses (after reimbursements and waivers)** 1.97% 0.25% 1.97% 1.48% 0.07%
Total Fund Operating Expenses (after reimbursements
and waivers) ** 1.97% 0.75% 1.97% 1.48% 0.15%
</TABLE>
#No transaction fees of any kind accrue to the Fund Adviser. The index
porfolio reimbursement fees are assessed to partially offset the
potentially dilutive effect to current long term shareholders from
future purchases. (See "Reimbursement Fees for Purchases and
Redemtpions" on page 9.)
*Management fees for the fiscal year ending June 30, 1996 before waivers were
0.90%, 1.09%, and 0.67% for the Ultra-Small Company, Aggressive Growth and
Social Responsibility Portfolios, respectively. Due to the performance fee
adjustment feature contained in the advisory contract, the management fee may
be as low as 0.2% or as high as 1.6% for the Aggressive Growth and Social
Responsibility Portfolios. The management fee for the Ultra-Small Company
Portfolio is a constant 0.9% except that the fee for the Ultra-Small Company
Portfolio during the period that the portfolio's net assets range from $27.5
to $55 million will be a flat $495,000 annually, subject to a maximum rate of
1.49%. The management fee will be a constant 0.5% for the Ultra-Small Index
Portfolio and 0.08% for the Bridgeway 30 Industrials Portfolio. (See
Management of the Fund, pages 11-12.)
**Other expenses for the fiscal year ending June 30, 1996 before reimbursements
and waivers were 2.17% for Ultra-Small Company, 4.64% for Aggressive Growth,
and 16.13% for Social Responsibility. Other expeneses for the Ultra-Small
Index and Bridgeway 30 Industrials Portfolio are estimated as they are new as
of the date of this prospectus. The Adviser has undertaken to reimburse the
fund for any operating expenses over 2.0% for Ultra-Small Company and
Aggressive Growth, 1.5% for Social Responsibility, 0.75% for Ultra-Small Index
and 0.15% for Bridegway 30 Industrials throught at least June 30, 1998. Total
fund operating expenses before reimbursements and waivers during the fiscal
year were 3.07%, 5.73% and 16.80% of average net assets for the Ultra-Small
Company, Aggressive Growth and Social Responsibility Portfolios, respectively.
Example:
You would pay the following expenses on a $1,000 investment assuming,
(1) expenses at the 6/30/97 rate of 2.0% for the Ultra-Small Company and
Aggressive Growth Portfolios and 1.5% for the Social Responsibility Portfolio,
0.75% for the Ultra-Small Index Portfolio, and 0.15% for the Bridgeway 30
Industrials Portfolio, (2) purchase reimbursement fees of 1.5% of the net value
of shares purchased (Ultra-Small Index only) and 0.07% (Dow Jones 30 Index
only), (3) a 5% annual return and (4) redemption at the end of each time period
not in a major market decline (see "reimbursement fees" on page 9):
ULTRA-SMALL COMPANY & SOCIAL ULTRA-SMALL BRIDGEWAY
AGGRESSIVE GROWTH RESPONSIBILITY INDEX 30 INDUSTRIALS
1 Year $20 1 Year $15 1 Year $8 1 Year $2
3 Years $62 3 Years $47 3 Years $23 3 Years $5
5 Years $106 5 Years $80 5 Years $40 5 Years $8
10 Years $229 10 Years $176 10 Years $90 10 Years $19
The amounts listed in this example should not be
considered as representative of future expenses and
actual expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5%
return, the Fund's actual performance will vary and
may result in an actual return greater or less than
5%. The foregoing table is to assist you in
understanding the various direct and indirect costs
and expenses that an investor in the Fund would
bear. Redemptions by mail (up to four per year or
through the automatic withdrawal plan) incur no
charges, but wire redemptions will incur a $15
charge to offset bank charges and administrative
expense. Redemptions on any day when the Dow Jones
Industrial Average has declined more than 5% in the
previous 5 trading sessions incur a 2% redemption fee
(Bridgeway 30 Industrials portfolio only) which accrues
to the portfolio.
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC.
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the period)
Ultra-Small Company Portfolio Aggressive Growth Portfolio Social Responsibility Portfolio
Year ended 8/5/94 to 6/30/95 Year ended 8/5/94 to 6/30/95 Year ended 8/5/94 to 6/30/95
June 30, 1996 * June 30, 1996 * June 30, 1996 *
<S> <C> <C> <C> <C> <C> <C>
Per share data
Net asset value,
beginning of period $11.35 $10.33 $11.71 $9.89 $11.61 $9.85
Income (loss) from investment operations:
Net investment
income (loss) (0.21) (0.04) (0.18) (0.02) (0.02) 0.07
Net realized and
unrealized gain 6.03 1.07 5.22 1.84 3.11 1.70
----------- -------- ----------- --------- ----------- --------
Total from investment
operations 5.82 1.03 5.04 1.82 3.09 1.77
Less distributions to shareholders:
Net investment income 0.00 0.00 0.00 0.00 (0.02) (0.01)
Net realized gains (0.49) (0.01) (0.09) 0.00 0.00 0.00
----------- -------- ----------- --------- ----------- --------
Total distributions (0.49) (0.01) (0.09) 0.00 (0.02) (0.01)
----------- -------- ----------- --------- ----------- --------
Net asset value,
end of period $16.68 $11.35 $16.66 $11.71 $14.68 $11.61
=========== ======== =========== ========= =========== ========
Total return [1] 52.4% 10.5% 43.3% 19.5% 26.6% 18.9%
Ratios & Supplemental Data
Net assets, end of period $4,557,591 $667,536 $1,502,485 $276,272 $360,960 $64,421
Ratios to average net assets: [2]
Expenses net of waivers
and reimbursements 1.97% 1.68% 1.97% 1.86% 1.48% 1.46%
Expenses before waivers
and reimbursements 3.07% 8.34% 5.73% 16.15% 16.80% 72.83%
Net investment
income (loss) (1.47%) (0.65%) (1.26%) (0.30%) (0.17%) 0.90%
Portfolio turnover rate [2] 155.9% 103.6% 167.7% 139.9% 83.8% 71.7%
=========== ======== =========== ========= =========== ========
[1] Not annualized for the period August 5, 1994 to June 30, 1995.
[2} Annualized for the period August 5, 1994 to June 30, 1995.
* August 5, 1994 was commencement of operations
See accompanying notes to financial statements.
THE DATA SET FORTH ABOVE HAS BEEN EXAMINED BY
COOPERS & LYBRAND L.L.P., INDEPENDENT ACCOUNTANTS,
AND THEIR REPORT THEREON IS INCLUDED IN THE
STATEMENT OF ADDITIONAL INFORMATION. FOR FURTHER
INFORMATION ABOUT THE PERFORMANCE OF THE FUND,
REFER TO THE FINANCIAL STATEMENTS CAPTION OF THE
STATEMENT OF ADDITIONAL INFORMATION.
RISK FACTORS
The Ultra-Small Company and Ultra-Small Index
Portfolios invest a majority of total assets in the common stock of
very small companies. "Very small companies" are those with market
capitalization the size of the smallest 10% of those listed on the New
York Stock Exchange. However, the majority of stocks in
these Portfolios are listed on NASDAQ rather than the New
York Stock Exchange. The market price of very small company
shares may exhibit greater volatility than large company shares.
The Adviser believes no other mutual fund
are committed to investing long-term in
companies this small. Indeed, according to Morningstar, only
two other mutual fund has a median market capitalization as
small as Bridgeway Ultra-Small Company Portfolio. and these do
no have a plan to remain invested in companies this small. While
ultra-small companies have historically had a higher
average annual return than large stocks over the long term (25
years and more), they have also had commensurately higher
volatility. Therefore, shareholders of this portfolio are exposed to
above-average short-term risk.
On the downside, companies this small may have limited
resources for expanding or surviving in a newly competitive
environment, may lack depth of management, may have a limited
product lines may lack of market "muscle," and may be more
sensitive to economic downturns. On the upside, such companies
may be more maneuverable in the marketplace, less bureaucratic,
may respond quicker to changing market forces, may
see a successful product add more to "the bottom line" in
percentage terms, and if they survive an economic downturn,
may "bounce back" faster.
While the Adviser attempts to limit some of the
downside volatility inherent in this asset class
in the Ultra-Small Company Portfolio (only) shareholders of
both ultra-small company portfolios should expect
significantly higher short-term price volatility than that experienced
by shareholders of most other funds. The Adviser believes
these Portfolios are more appropriate as a
long term investment (at least 5 years, but ideally
10 years or more) for shareholders
who can accommodate short-term price volatility, or as a
diversifier to a portfolio consisting primarily of
larger stocks. They are not appropriate investments
for short-term investors or those trying to time
the market. (See "Frequent trading of fund shares,"
The Ultra-Small Company Portfolio will remain closed
to new investors as long as the portfolio net assets exceed
$27.5 million, in order to ensure that the fund may remain actively
invested in companies which the investment adviser believes are
good investment opportunities. Closing this portfolio to new
investors will result in a higher expense ratio than would
otherwise be the case. It could also result in higher volatility
since redemptions would not be offset by new purchases.
The Aggressive Growth Portfolio and the Social
Responsibility Portfolio may 1) borrow money from
banks up to 50% of the net assets of the respective
portfolios, and 2) purchase and sell futures and
options on stock, index, interest rate and currency
instruments, among others (see page 5 for a fuller
description). Using borrowed funds for investment
purposes is called "leveraging" and increases the
risk of loss or gain in the value of the Fund's
assets and the net asset value of its shares. The
Aggressive Growth Portfolio's higher turnover (more
frequent trading) will expose it to increased cost
and risk.
The Aggressive Growth Portfolio may also purchase
warrants, invest up to 5% of its assets in the
securities of new issues or "unseasoned issues"
which have been in operation less than three years,
engage in short-term trading, invest up to 10% of
its assets in foreign securities and ADR's listed
on American exchanges, invest any amount less than
25% of its portfolio in a single security, invest
up to 5% of portfolio assets in a closed-end
investment company, lend portfolio securities and
engage in short sale transactions either against
the box or by shorting securities of other issuers.
The Social Responsibility Portfolio may purchase
the same type of securities and utilize the same
investment techniques, except that it will only
enter into short sale transactions against the box,
will not invest in closed-end investment companies,
and will not lend portfolio securities. These
investment techniques may subject an investor to
greater than average risks and costs.
Foreign securities may be affected by the
strength of foreign currencies relative to the U.S.
dollar, or by political or economic developments in
foreign countries. Consequently, they may be more
volatile than U.S. securities. Short sale
transactions, while limited to 20% of total assets
and fully collateralized by cash in segregated
accounts, also represent potentially higher risk
for Aggressive Growth shareholders, since the
maximum gain is 100% of the initial collateralized
amount, but there is no theoretical maximum loss.
The Aggressive Growth portfolio will maintain cash
reserves ("100% coverage") equal to the market
value of any short positions for which it does not
already own shares. These cash reserves may be
invested in money market or short term Treasury
securities held by the Fund's custodian or broker
or both. Shareholders of the Aggressive Growth
portfolio could also bear higher risk through the
lending of securities. If the borrowing broker
were to become bankrupt, the Portfolio might
experience delays in recovering its assets (even
though fully collateralized); the Portfolio would
bear the risk of loss from any interim change in
securities price. Collateral for securities lent
will be invested in money market or short-term
Treasury securities.
Although Bridgeway Capital Management, Inc.
(hereinafter referred to by name or as the
"Manager", or the "Adviser"), believes that the
investment techniques it employs to manage risk in
the Aggressive Growth and Social Responsibility
Portfolios will further the Portfolios' investment
objectives and reduce losses that might otherwise
occur during a time of general decline in stock
prices, no assurance can be given that these
investment techniques will achieve this result.
The hedging techniques used here would reduce
losses during a time of general stock market
decline, if the Fund had previously sold futures or
bought puts on stock indices or entered into short
positions in individual securities offsetting some
portion of the market risk. Thus, these Portfolios
are appropriate investments only for investors who
understand the investment practices to be employed
by the Adviser and are able to accept the potential
risks. The Adviser has managed no other registered
investment company.
The Adviser intends to buy and sell futures,
calls, and/or puts in the Aggressive Growth and
Social Responsibility Portfolios to increase or
decrease portfolio exposure to the stock market,
interest rate, and currency market risk as
indicated by statistical models of risk. (The Fund
will not sell "uncovered" calls.) The Adviser will
use these instruments to attempt to maintain a more
constant level of risk as measured by certain
statistical indicators. In addition to the use of
futures and options for hedging as described above,
the Aggressive Growth Portfolio of the Fund may buy
or sell any financial or commodity futures, calls,
or puts listed on the major exchanges (CBOT, CME,
COMEX, IMM, IOM, KCBT, MA, NYSCE, NYCTE, NYFE, or
NYME), for purposes of diversification of risk to
the extent that the aggregate initial margins and
premiums required to establish such nonhedging
positions do not exceed 5% of its total net assets.
Examples of such financial or commodity instruments
include the Bond Buyer Municipal Index, British
Pounds, crude oil, gold, and wheat among others.
Options and futures can be volatile investments and
may not perform as expected. Potential risks
associated with options and futures include 1)
leverage risk (these instruments are designed to
produce substantial value change relative to the
amount invested, thus magnifying the risk of loss
as well as potential gains), 2) dependence on the
Adviser's ability to correctly predict market
movement, 3) imperfect correlation between the
price of options and futures contracts and the
underlying securities being hedged, 4) the
possibility of trading halts in options and
futures, 5) the possible need to defer closing out
certain hedged positions to avoid adverse tax
consequences, and 6) increased complexity of
futures and options requiring a higher level of
training for the portfolio manager and support
personnel.
The Adviser's goal in the Aggressive Growth and
Social Responsibility Portfolios is to manage these
various risks through diversification and hedging
strategies to achieve a reasonable return at a
total risk equal to or less than that of the stock
market (as measured by certain statistical measures
over periods of three years or more).
(Hereinafter, "stock market" will mean stock market
as represented by the Standard & Poor's Composite
Stock 500 Index with dividends reinvested.) No
assurance can be given that these investment
techniques will achieve the objectives of higher
return or equal risk. A Portfolio's possible need
to sell securities to cover redemptions could, at
times, force it to dispose of positions on a
disadvantageous basis.
The Bridgeway 30 Industrials Portfolio invests in the
30 large capitalization stocks which comprise the Dow Jones
Industrial Average. The Dow Jones Industrial Average is a
registered trademark of Dow Jones & company. (See
"Disclaimers" page 9.) While these are larger, well established,
and more stable companies, this portfolio may exhibit greater
volatility (short-term risk) than other large capitalization index
funds which invest in a larger number of companies. Also, while
large companies tend to exhibit less short-term volatility than
small stocks, historically they have not recovered as fast from a
market decline. Consequently, the Bridgeway 30 Industrials
Portfolio may offer higher inflation risk (the risk that the portfolio
value will not keep up with inflation) than the ultra-small company
portfolios.
The Adviser invests in no tobacco company stocks except in
the Bridgeway 30 Industrials Portfolio. However, the Adviser
plans to become a shareholder activist to encourage more
responsible corporate citizenship by any tobacco companies
owned. If successful, this could increase such companies' costs,
and diminish shareholder value. Investors who are not in
agreement with this strategy may find this Portfolio an inappropriate
investment for them.
INVESTMENT OBJECTIVES AND POLICIES
Bridgeway Fund, Inc. ("the Fund") is a no-load, diversified
open-end investment company or "mutual fund." The Fund is
organized as a "series" fund and has five
investment portfolios, the Bridgeway Ultra-Small Company
Portfolio, the Ultra-Small Index Portfolio, the Bridgeway
Aggressive Growth Portfolio and the Bridgeway Social
Responsibility Portfolio and the Bridgeway 30 Industrials
Portfolio.
The Ultra-Small Company and Ultra-Small Index
Portfolios seek to provide total return (primarily capital
appreciation but also income) by investing at least 80% of
total portfolio assets in very small companies. The Ultra-Small
Company Portfolio is actively managed, while the Ultra-Small
Index Portfolio invests passively in companies which comprise the
CRSP Cap-Based Portfolio 10 Index. (This index is more fully
described in the following paragraph.) For the purpose of
measuring the 80% requirement, "very small company" will
mean companies with market capitalizations less than the upper
limit of the smallest 10% of the New York Stock Exchange
(NYSE). As of December 31, 1996 this upper limit
is represented by companies of less than $94 million market
capitalization, but will fluctuate with market prices. When
investing or reinvesting portfolio funds, the investment
adviser will not purchase the securities of companies larger than
this limit unless at least 80% of the portfolio funds invested
after such purchase would be invested in very small companies.
The Ultra-Small Company and Ultra-Small Index Portfolios may
invest up to 5% of its assets in the securities of "unseasoned
issuers" which have been in operation less than three years. The
Ultra-Small Company Portfolio may also invest up to 10% of its
assets in foreign securities and ADR's listed on American
exchanges. The annual portfolio turnover rate should normally be
less than 150% for the Ultra-Small Company Portfolio and less
than 30% for the Ultra-Small Index Portfolio, but the Index
Portfolio may be higher during the first two years of operations as
assets build significantly.
At a shareholder meeting on October 15, 1996, shareholders
voted 1)to close the Ultra-Small Company Portfolio to new
investores any time net assets exceed $27.5 million, 2)to allow these
shareholders to invest an additional amount equal to their previous
net contributions for an extended period, and 3)to allow
employees, directors, and participants in the pension plan of the
Adviser or of the Fund to purchase any unsubscribed shares in
item 2 or shares redeemed in the Portfolio. Restricting the
number of shares outstanding will keep Portfolio assets small and
will help to ensure that the Portfolio may remain actively invested
in very small companies which the investment adviser believes
offer good investment opportunities. See "Security Selection
Process" for more details of the security selection process.
The Ultra-Small Index Portfolio seeks roughly to meet the total
return of the University of Chicago's Center for Research in
Security Prices (CRSP) Cap-Based Portfolio 10 Index by
investing in a representative sample of index companies. This
Index is comprised of all common stocks listed on the New York
and American Stock Exchanges, and the Nasdaq National
Market (excluding unit investment trusts, closed-end funds, real
estate investment trusts, americus trusts, foreign stocks, and
American Depository Receipts) which are the size (market
capitalization) of stocks in the smallest 10% of the New York
Stock Exchange. No other index or passively managed mutual
fund is based on an index of companies this small. Similiar to other
index funds, the actual return of this portfolio will likely
underperform the Ultra-Small Index by an amount equal to the
Portfolio expenses and transaction costs. The adviser seeks to
minimize this difference or "tracking error" by carefully managing
costs, reimbursing expenses over 0.75% annually if necessary,
keeping portfolio turnover to a minimum, and by the purchase and
redemption fees outlined under "Reimbursement Fees for
Purchases and Redemptions." Because of the higher expense
ratio, higher transaction costs, and investments in only a
representative sample of index companies (the Adviser expects to
own 300 or more during the first year), the tracking error of this
Portfolio will likely be greater than that of the Bridgeway 30
Industrials Portfolio. The Adviser will consider selling the highest
capitalization companies in the Ultra-Small Index Portfolio when
necessary to keep the average market capitalization of the
portfolio equal to that of the CRSP Cap-Based Portfolio 10 Index.
The Adviser will consider industry/sector representation, as well
as certain economic factors (such as price to earnings ratios)
when choosing companies to add to the Portfolio.
The Aggressive Growth Portfolio seeks to exceed
the stock market total return (primarily capital
appreciation but also income) at a level of total
risk roughly equal to that of the stock market over
longer periods of time (three years or more).
While the portfolio may hold some higher dividend
paying stocks, it is expected that the Portfolio
will normally have a dividend yield of less than
the stock market as a whole. Thus, investors
seeking income as a major portion of total return
should not invest in this portfolio. There can, of
course, be no assurance that the objective of total
return or level of risk will be realized. This
Portfolio may use bank debt primarily for leverage.
Therefore, full consideration should be given to
the risks inherent in the investment techniques
that the Adviser may use as outlined in Risk
Factors. Normally, the Portfolio will invest in
common stocks at a level equal to at least 100% of
its net assets. Portfolio exposure to market risk
will vary over time. Using hedging strategies, the
Portfolio exposure to market risk may be negatively
correlated to the market, or may be as high as 150%
of the market as measured by the estimated
portfolio beta. "Negative correlation to the
market" means that if the market goes up, the value
of the portfolio goes down. A portfolio beta of
150% means that a 1% increase (decrease) in the
stock market should result in a 1.5% increase
(decrease) in the portfolio. These hedging
strategies are intended to maintain a more constant
level of total risk. For example, if the
investment adviser feels the portfolio is exposed
to an unusually high probability of general stock
market decline, it might sell stock index futures
to offset this risk.
The portfolio turnover rate (buying and selling
frequency) will likely be higher than 100% but no
more than 500%, which is higher than most
aggressive growth funds. A 500% portfolio turnover
is equivalent to the sale and repurchase of all of
the securities in the portfolio five times during
the year. Consequently, the Portfolio may incur
higher than average trading costs and may incur
higher shareholder taxes for non-tax deferred
accounts.
In summary, this Portfolio seeks to 1) exceed the
stock market total return 2) at a level of total
risk roughly equal to the stock market over longer
periods of time. Due to the possibility of a
decline in total value, this Portfolio is not an
appropriate investment for short term investors or
those who cannot assume the inherent risks. See
"Security Selection Process" for more details of
the security selection process. No form of
fundamental or technical analysis, including that
employed by the Adviser, has been proven
conclusively to provide a risk adjusted excess rate
of return on a consistent basis.
The Social Responsibility Portfolio seeks to
exceed the stock market total return (primarily
capital appreciation but also income) at a level of
total risk roughly equal to or less than that of
the stock market over longer periods of time (three
years or more) by investing in companies with
social criteria generally in line with those of its
shareholders as determined by survey. Each
shareholder is entitled and encouraged to
participate in this survey by submitting a survey
form when opening a new account or anytime
thereafter by requesting a new form from the Fund.
The Adviser presently ranks about 680 companies
according to the following criterias measured by
the Council of Economic Priorities ("CEP"): the
company's environmental record, charitable giving
record, advancement of minorities in the workforce,
community outreach, family benefits,
workplace issues, animal testing and disclosure of
information. With the exception of military
contracts and animal testing, "more" is understood
to mean "better." The CEP is a New York City based
not-for-profit public interest research
organization that has conducted research in the
field of corporate social responsibility for more
than two decades.
After determining shareholder
weights (proportional to the number of Portfolio
shares owned) of each of these criteria, the
Adviser ranks each of these companies. Thus, the
rankings should proportionally reflect the
weightings of each surveyed shareholder, and could
consequently change over time. The Fund invests at
least 65% of its total assets in the companies in
the top fifth of the ranking and at least 95% of
its common stock investments in the companies
contained in the top half of the ranking. The
Adviser monitors CEP company ratings quarterly.
The social criteria may change in the future as a
result of the majority vote of the Fund's Board of
Directors, or as more or different information is
made available to the Adviser. The Advisor
currently suppliments CEP research with its own
research on other companies using the same 10
social criteria. The Adviser excludes or sells from
the portfolio companies which a majority of
surveyed shareholders choose to exclude. As of the
date of this prospectus, the Adviser excludes
companies in the tobacco and gaming industries.
This Portfolio may use bank debt for leverage and
index futures and stock and index options to hedge
market risk. Using hedging strategies, the
Portfolio's exposure to market risk may be as low
as 50% of the market, or as high as 150% of the
market as measured by the estimated portfolio beta.
A portfolio beta of 150% means that a 1% increase
(decrease) in the stock market should result in a
1.5% increase (decrease) in the portfolio. While
somewhat higher in the first two years of
operations, the turnover rate of this portfolio
should be 50% or less on an annual basis in the
future.
In summary, this Portfolio seeks to 1) exceed the
stock market total return, 2) at a level of total
risk roughly equal to or less than the stock market
over longer periods of time, 3) by investing in
companies with social criteria generally in line
with those of its shareholders. There can be no
assurance that any of the Portfolio's objectives
will be realized. No form of fundamental or
technical analysis, including that employed by the
Adviser, has been proven conclusively to provide a
risk adjusted excess rate of return on a consistent
basis. Therefore, full consideration should be
given to the risks inherent in the investment
techniques that the Adviser may use as outlined in
Risk Factors. See "Security Selection Process" for
more details of the security selection process.
The Bridgeway 30 Industrials Portfolio seeks to meet
the total return of the Dow Jones Industrial Average (DJIA) of 30
large capitalization cyclical companies by investing in these same
30 companies. Composition of this Portfolio will change along with
that of the index. Similiar to other index funds, the actual return of
this portfolio will likely underpoerform the DJIA by an amount equal
to the Portfolio expenses and and transaction costs. The adviser seeks
to minimize this difference or "tracking error" by carefully
managing costs, reimbursing expenses over 0.15% annually if
necessary, keeping portfolio turnover to a minimum, and by the
purchase and redemption fees outlined under "Reimbursement
Fees for Purchases and Redemptions" (page 9). As a result of
index recomposition and some redemptions, the turnover for this
portfolio should be less than 10% annually, but could be higher in
the first two years as assets are building significantly.
SECURITY SELECTION PROCESS. In determining
which securities to purchase for the actively managed portfolios, the
Adviser reviews potential companies that meet its
market capitalization, earnings history, liquidity
and other fundamental and technical criteria and
then analyzes this grouping from an industry
perspective. Because different industries have
varying risk and growth characteristics depending
on prevailing economic and market conditions,
valuation considerations vary. It is expected that
all or substantially all (more than 95%), of the
equity securities held by the Fund will trade on
the New York and American Stock Exchanges, and
NASDAQ.
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF INVESTMENT TECHNIQUES USED:
ULTRA-SMALL ULTRA-SMALL AGGRESSIVE SOCIAL BRIDGEWAY
COMPANY INDEX GROWTH RESPONSIBILITY 30 INDUSTRIALS
<S> <C> <C> <C> <C> <C>
Borrowing (leverging) No No Yes Yes No
Hedging No No Yes Yes No
Options (stock index) No No Yes Yes No
Futures (stock index) * * Yes Yes No
Options (other) No No Yes No No
Futures (other) No No Yes No No
Short-sales No No Yes No No
Warrants No No Yes Yes No
Foreign companies/ADR's Yes No Yes Yes No
Closed-end investment companies No No Yes No No
Lending securities No No Yes No No
New issues/Unseasoned companies Yes Yes Yes No No
High turnover Yes No Yes No No
Short-term trading Yes No Yes No No
</TABLE>
* THE ULTRA-SMALL COMPANY PORTFOLIO MAY ONLY TAKE
TEMPORARY, LONG, STOCK INDEX FUTURES POSITIONS TO
OFFSET THE EFFECT OF CASH HELD FOR FUTURE INVESTING
OR FOR POTENTIAL REDEMPTIONS. NO MORE THAN 35% OF
PORTFOLIO NET ASSETS WILL BE AT RISK IN THIS
LIMITED USE OF STOCK INDEX FUTURES.
<PAGE>
The equity securities in which the Fund will
invest consist of common stocks, although the Fund
reserves the right to purchase securities having
characteristics of common stocks, such as
convertible preferred stocks, convertible debt
securities or warrants, if such securities are
deemed to be significantly undervalued and their
purchase is appropriate in furtherance of each
Portfolio's objective as determined by the Adviser.
The rating of any convertible preferred stocks,
convertible debt, or other debt securities held by
the Fund will be in the highest three levels of
"investment-grade," that is, rated A or better by
either Moody's Investors Service, Inc. or Standard
& Poor's Corporation, or, if unrated, judged to be
of equivalent quality as determined by the Adviser.
The Fund may also invest in the following debt
securities: 1) those which are direct obligations
of the U.S. Treasury (e.g. Treasury bonds or
bills), 2) those supported by the full faith and
credit of the United States (e.g. "GNMA"
certificates) and 3) those supported by the right
of the issuer to borrow from the U.S. Treasury
(e.g. "FNMA" securities).
It is expected that short-term money market
securities would normally represent less than 10% of
the Fund's total assets. However, in the event
future economic or financial conditions adversely
affect equity securities of the type described
above, the Fund may take a temporary, defensive
investment position and invest all or part of its
assets in such short-term money market securities.
These short-term instruments include securities
issued or guaranteed by the U.S. Government and
agencies thereof.
DISCLAIMER--CENTER FOR RESEARCH IN
SECURITIES PRICES AND DOW JONES & CO., INC.
Neither Bridgeway Ultra-Small Index Portfolio nor
the Bridegway 30 Industrials Portfolio is sponsored,
sold, promoted, or endorsed by University of Chicago's
Center for Research in Securities Prices (CRSP) or Dow
Jones & Company, Inc., the organizations which created
and maintain the CRSP Cap-Based Portfolio 10 Index
and the Dow Jones Industrial Average. Neither
organization makes any representation or warranty,
express or implied, about the advisability of investing in
securities generally, or in any Bridgeway Fund portfolio
sepecifically. Neither CRSP nor Dow Jones & Company
have any obligation or liability with respect to the Fund
portfolios or their sharehodlers. "Dow Jones" is a
registered trademark of Dow Jones & Company, Inc.
REIMBURSEMENT FEES FOR PURCHASES AND REDEMPTIONS
Ultra-small companies have significant trading costs, in
particular wide bid/ask spreads. While these costs are minimal
for DJIA companies, even these costs can add up to significant
amount when portolio assets grow multifold in a year.
In order to eliminate the dilutive effect of such trading costs, the
index portfolios will sell shares at a price equal to the net asset
value of the units plus an additional 1.5% purchase reimbursement
fee for the Ultra-Small Index Portfolio and 0.07% for the
Bridgeway 30 Industrials Portfolio. The amount of the reimbursement
fees represent management's estimate of the costs
reasonably anticipated to be associated with the purchase of
securities by these portfolios. They are meant to benefit the
long-term shareholder against the potentially dilutive effect of later
share purchases by other shareholders. The amount of this fee is
reviewed and may be adjusted annually by the Fund Board of
Directors. It is paid to the portfolio and does not represent a load
which accrues to the Adviser or other organization. The
reimbursement fee is waived for shares purchased through
dividend reinvestment and also for shares purchased on the first
day of trading, July 2, 1997.
In order to minimize transaction costs and the negative tax
consequences (for taxable accounts) of high turnover, the Board
of Directors of the two index portfolios may impose a 2%
redemption reimbursement fee for sharehodlers who redeem in a down
market. Specifically, this fee may be imposed any time the DJIA
(without dividends) has declined more than 5% over the
previous 5 trading days. The adviser beleives this redemption
reimbursement fee will discourage potential shareholders who
would engage in panic selling which increases transaction costs
and capital gains distributions.
PRINCIPAL INVESTMENT RESTRICTIONS
The Fund is subject to certain investment
restrictions which are fundamental policies that
cannot be changed without the approval of a
majority of the Fund's outstanding voting
securities (as defined in the Investment Company
Act of 1940, referred to as the "1940 Act").
Each Portfolio's investment objective is such a
fundamental policy. In addition, as a matter of
Fundamental policy, (i) at least 75% of each
portfolio's total assets are limited in respect of
any one issuer to an amount not greater in value
than 5% of the value of the total assets of the
portfolio and to not more than 10% of the
outstanding voting securities of such issuer and
(ii) no portfolio may borrow money except from
banks for temporary or emergency purposes in
amounts not exceeding 10% of the Fund's net assets.
However, the Aggressive Growth and Social
Responsibility Portfolios may borrow money for
investment purposes up to 50% of net assets prior
to such borrowing as described earlier. Additional
information about the Fund's fundamental policies
and other investment restrictions is contained in
the Statement of Additional Information.
In addition, the Fund's operating policies
preclude it from making certain investments if
thereafter more than 10% of the value of its net
assets would be so invested. The investments
included in this 10% are (i) those which are
restricted, i.e. those which cannot freely be sold
for legal reasons (which the Fund does not expect
to own); and (ii) investments for which market
quotations are not readily available (which the
Fund does not expect to own).
MANAGEMENT OF THE FUND
The Fund's Board of Directors decides on matters of
general policy and reviews the activities of the
Fund's Adviser, and the Fund's officers conduct and
supervise its daily business operations. Bridgeway
Capital Management, Inc. (the "Adviser"), 5650
Kirby Drive, Suite 141, Houston, Texas 77005-2443,
acts as the investment adviser to the Fund, subject
to the control of the Fund's Board of Directors.
The Adviser is a Texas corporation that was
organized in 1993 to act as the Fund's investment adviser.
The Adviser is controlled by its President John N. R.
Montgomery and his family. From 1985 to 1992 Mr.
Montgomery gained extensive experience managing
his own investment portfolio utilizing the
techniques that he uses in managing the Portfolios
of the Fund. Mr. Montgomery is solely
responsible for managing the assets of the Funds
and selecting the securities that each Portfolio
will purchase and sell, although he will be
assisted by other employees who will provide him
with research assistance. He has earned graduate
degrees from both the Massachusetts Institute of
Technology and Harvard Graduate School of Business
Administration. Mr. Montgomery has been a research
engineer/project manager at the Massachusetts
Institute of Technology, has served as an executive
with transportation agencies in North Carolina and
Texas, and founded Bridgeway Capital Management,
Inc. in July, 1993.
The Adviser is responsible for the investment and
reinvestment of the Fund's assets, provides the
Fund with executive and other personnel, office
space and other facilities and administrative
services, and supervises the Fund's daily business
affairs. It formulates and implements a continuous
investment program for the Fund, consistent with
the investment objective, policies and restrictions
of each of its Portfolios. Under the Management
Contract with the Advisor, the Ultra-Small Company
Portfolio pays the Adviser a flat 0.9% annual
management fee, the Ultra-Small Index Portfolio pays
a flat 0.5% annual fee, and
the Bridgeway 30 Industrials Portfolio pays a 0.08% annual
fee, computed daily and payable monthly.
However, the fee for the Ultra-Small Company Portfolio
during the period that the net assets range from $27.5
to $55 million will be paid as if the Portfolio had
$55 millionunder management (that is $55 million
time .009 equals $495,000), subject to a maximum
1.49% annual rate. The Ultra-Small Company Portfolio
fee is higher than the fee
paid by most investment companies to their Adviser,
but lower than the average of new "micro-cap" funds.
The board of directors has determined that this
fee is appropriate for this type of "very small-
cap" fund and the "ultra-small" charter.
<PAGE>
The Aggressive Growth and Social Responsibility
Portfolios of the Fund pay the Adviser a base
annual management fee, computed daily and payable
monthly of 0.90% of the Fund's average daily net
assets (also higher than that paid by most
investment companies), which will be adjusted
upwards or downwards by 4.67% of the difference
between the investment performance of each
Portfolio and the investment performance of the
Standard & Poor's Composite 500 Stock Index
(hereinafter, the "Index") over a 5 year rolling
period of time. No adjustment will be made when
that difference is less than or equal to 2%. The
performance adjustment rate will range from -.7% to
+.7%. Thus, depending on portfolio performance,
the Aggressive Growth and Social Responsibility
Portfolios could pay a total annual advisory fee as
low as 0.2% (among the lowest in the industry) or
as high as 1.6% (among the highest in the
industry). In accordance with the graph and table
on page 10, the Fund could pay a higher fee when
both the Fund's performance and the S&P 500 Index
performance are negative (e.g. if the Fund
performance were -10%, but the S&P 500 Index
performance was -13%); also the Fund could pay a
lower fee when both performances were positive
(e.g. if the Fund performance was 10% but the S&P
500 Index performance was +13%).
AGRESSIVE GROWTH & SOCIAL RESPONSIBILTY PORTFOLIO
SAMPLE TOTAL MANAGEMENT FEES*
(BASED ON FUND RELATIVE PERFORAMANCE)
FUND PERFORMANCE TOTAL MANAGEMENT
RELATIVE TO S&P 500 FEE
21.0% 1.60%
18.0% 1.60%
15.0% 1.60%
12.0% 1.46%
9.0% 1.32%
6.0% 1.18%
3.0% 1.04%
2.0% .90%
0.0% .90%
- -2.0% .90%
- -3.0% .76%
- -6.0% .62%
- -9.0% .48%
- -12.0% .34%
- -15.0% .20%
- -18.0% .20%
- -21.0% .20%
* THIS TABLE APPLIES TO THE AGGRESSIVE GROWTH AND
SOCIAL RESPONSIBILITY PORTFOLIOS ONLY.
Since the Fund does not have a five year
operating history, the performance rate adjustment
will be calculated as follows during remainder of
the initial five year period of operations through
September 30, 1999.
From April 30, 1995 through Sept. 30, 1999, the
performance rate adjustment fee will be calculated
based upon a comparison of the investment
performance of each Portfolio and the Index over
the number of quarters that have elapsed since the
Fund began operations. Each time the performance
adjustment fee is calculated, it will cover a
longer time span, until it can cover a running 5
year period as intended. In the meantime, the
early months of the transition period will have a
disproportionate effect on the performance
adjustment of the fee. From July 1, 1995 to June
30, 1996, the Ultra-Small Company, Aggressive
Growth, and Social Responsibility Portfolios waived
management fees of $14,056, $8,037 and $1,416
respectively to the adviser.
In addition to the fees payable to the Adviser,
the Fund is responsible for its operating expenses,
which include such items as interest, taxes, legal
and audit expenses, and custodian and shareholder
servicing agent fees. See Statement of Additional
Information for more information as to the Fund's
Board of Directors, Officers, the Adviser and the
Fund's operating expenses.
In placing orders for the Fund's portfolio
transactions, the Adviser's policy is to seek "best
execution", i.e. prompt and efficient execution at
the most favorable price. In seeking to achieve
this combination, the Adviser evaluates factors
such as the overall quality and reliability of
dealers and services they provide, including
general execution capability, reliability,
operational capacity and financial condition.
Subject to this policy, the Adviser also is
CODE OF ETHICS
Both the Fund and the Adviser subscribe to a
mission statement which places integrity above
every other business goal. The Fund portfolio
manager is encouraged to invest in shares of
the Fund and is not allowed to invest in shares of
equity securities which the Fund might also
potentially own. Other employees, officers, and
directors of the Fund and the Adviser are also
encouraged to own shares of the Fund and may only
trade shares of equity securities within very
stringent guidelines contained in the Code of
Ethics. Neither the Fund nor the Adviser takes part in directed
brokerage arrangements, pays soft dollar
commissions or have a brokerage relationship with
any affiliated organization. Copies of the mission
statement and Code of Ethics may be obtained from
the Fund. Any shareholder or potential shareholder
who feels a policy, action, or investment of the
Fund or Adviser does or may compromise the highest
standards of integrity is encouraged to call the
Fund President directly at 800-661-3550.
DISTRIBUTION OF FUND SHARES
The Ultra-Small Company Portfolio is now closed to new
investors, and will remain so unless nets assets drop below $27.5
million. Shares of the other Fund portfolios are offered at their net asset
value without a sales charge as an investment
vehicle for individuals, institutions, fiduciaries
and retirement plans. The Fund reserves the right to reject any order.
The Advisor may make payments out of its capital or profits of up to
0.35% of the average daily net assets attributable
to broker/dealers or registered representatives including retirement
plan consultants, that provide assistance in its
efforts to distribute shares of the Fund.
Such payments and any other costs of distribution are
made by the Advisor out of its own resources. The
Advisor is currently paying 0.35% of average net assets
(Aggressive Growth, Social Responsibility, and Ultra-Small Company
Portfolios only) at its own - not the Fund's -
expense to Fidelity Investment's Funds Network to be
included in their no-transaction fee marketplace. The Adviser
may consider additional such arrangements in the future. Any such
distribution arrangement must be approved by a
majority of independent Fund directors. On October
15, 1996 shareholders approved a 12b-1 plan whereby
the Fund acts as its own distributor of its shares
and the Adviser pays all distribution expenses of the Fund.
HOW TO PURCHASE SHARES--AGGRESSIVE GROWTH AND
SOCIAL RESPONSIBILITY PORTFOLIOS
The minimum initial direct investment without a transaction fee
in the Aggressive Growth and Social Responsibility
Portfolios is $2,000 for individuals
and for retirement and other employee benefit plans.
(A potential shareholder may open an account with the Fund
after committing to the automatic investment plan for a minimum
12 month period at a level of at least $200 per month as of
6/30/97.) The minimum subsequent investment without a
transaction fee is $500. However, shares of these two portfolios
are currently also available at lower minimums (e.g. $1,000)
through at least one brokerage firm (Jack White) on a transaction
basis (currently $27 per transaction). The Fund
reserves the right to reject any order.
HOW TO PURCHASE SHARES--ULTRA-SMALL INDEX AND
BRIDGEWAY 30 INDUSTRIALS PORTFOLIOS
The Ultra-Small Index and Bridgeway 30 Industrials Portfolios
impose no minimum investment for shareholders who purchase
shares on a fee for transaction basis through any broker than can
demonstrate a resonably constant flow of investments. Such
brokerage firms usually impose their own minimums in the range
of $1,000 to $2,500. Currently three brokerage firms have
qualified under this plan: Jack White, Fidelity, and National
Investor Services Corp. (Waterhouse). Typical transaction fees
range from $27 to $50, but do vary and may change. Minimum
initial direct investments for purchase of Ultra-Small Index and
Bridgeway 30 Industrials Portfolio shares is $1,000,000 (subject to
increase by the Board of Directors), with a $250,000 minimum
additional investment. The Ultra-Small Index and
Bridgeway 30 Industrials Portfolios are subject to reimbursement
fees as outlined above on page 9. The Fund reserves the right to
reject any order.
TAX SHELTERED RETIREMENT PLANS
Shares of the Fund may be purchased for various
types of retirement plans, including Individual
Retirement Plans (IRA's). For more complete
information, contact the Fund at 800-661-3550.
PURCHASE BY CHECK
Investors may purchase shares by sending a check
payable to Bridgeway Fund, Inc. together with the
application form, to: Bridgeway Fund, Inc., 5650
Kirby Dr., Suite 141, Houston, TX 77005-2443, by
mail or courier service, or over night courier.
Shares of the Fund will be purchased for the
account of the investor at the new asset value next
determined after receipt of the investor's
application plus wire or check. Returned checks
will incur a $10 charge.
PURCHASE BY WIRE
Investors may invest in the Fund by wire only by first
sending by mail or facsimile (713-661-3587) a completed
application. After receipt of the application, investments may be
wired to the Fund's custodian bank at the following address:
Compass Bank, ABA #113010547 for credit to Bridgeway
Fund, account #70536749 and for further credit to (shareholder
name and account number or social security number).
Mail the original application to the
Fund at the following address: Bridgeway Fund,
Inc., 5650 Kirby Dr., Suite 141, Houston, TX
77005-2443.
AUTOMATIC PURCHASE BY MONTHLY BANK DRAFT
You can arrange to open an account with a minimum
$200 investment by agreeing to automatically
purchase $200 or more of a single Portfolio's
shares each month until at least a minimum of
$2,400 is invested by sending a canceled check from
your checking account and filling out the Automatic
Investment Plan section of the new account
application.
NET ASSET VALUE
The Fund's net asset value per share is determined
on each day that the New York Stock Exchange is
open for trading, as of the close of the Exchange
(currently 4:00 p.m. Eastern time). Purchase
orders received or shares tendered for redemption
on a day the Exchange is open for trading prior to
the close of trading on that day will be valued at
the close of trading on that day. Application for
purchase of shares and requests for redemptions of
shares received after the close of trading on the
Exchange will be base on the net asset value as
determined as of the close of trading on the next
day that the Exchange is open. See
"Reimbursement Fees for Purchases and Redemptions" (page 9)
for important information on purchase and redemption fees for
Ultra-Small Index and Bridgeway 30 Industrials Portfolios.
The net asset value per share of each Portfolio
is the value of the Portfolio's assets, less its
liabilities, divided by the number of shares of the
Portfolio outstanding. The value of the Fund's
securities is determined on the basis of the market
value of such securities. Short-term investments
maturing in less than 60 days are valued at
amortized cost unless the Board of Directors
determines that it does not represent a fair value.
See the Statement of Additional Information for
further information.
HOW TO REDEEM SHARES
A shareholder wishing to redeem shares by telephone
may do so if appropriate information is supplied on
the Account Registration Form. You can redeem
shares by calling the Fund at 800-661-3550 (or in
Houston 661-3265) prior to the close of the New
York Stock Exchange (currently 4:00 p.m. E.S.T.) to
receive that day's price. The proceeds may be sent
by check to your address of record only or by wire
transfer to your bank account of record only on the
next business day following your telephone request.
Wire transfers will incur a cost of $15 subtracted
from the proceeds.
A shareholder wishing to redeem shares may do so
at any time by writing or delivering written
instructions in proper form to: Bridgeway Fund,
Inc., 5650 Kirby Drive, Suite 141, Houston, TX
77005-2443. Redemption requests by fax will not be
accepted. The signatures on written instructions
to redeem shares must be in the same name as the
account shares, and must have a medallion guarantee
by a member of a national securities exchange or a
commercial bank. Most commercial banks are now
part of the medallion program, but not all. A
medallion signature guarantee is not the same as
notarization, and an acknowledgment by a notary
public is not an acceptable substitute. Additional
documents may be required from corporations or
other organizations, fiduciaries or anyone other
than the shareholder of record. Any questions
concerning documents should be directed to the Fund
at 800-661-3550 (or in Houston at 661-3265).
The redemption request must specify the number of
shares or dollars to be redeemed and be signed by
all registered owners with signatures medallion
guaranteed. The request will not be accepted
unless it contains all required documents in proper
form, as described above. If the request is in
proper form, the shares specified will be redeemed
at the net asset value next determined after
receipt of the request.
SYSTEMATIC CASH WITHDRAWAL PLAN
You can arrange to automatically redeem shares in a
set monthly or quarterly amount ($100 minimum) from
your account and a check will be automatically
mailed to you. An annual charge of $20 will be
deducted for monthly amounts less than $500.
Simply fill out the Systematic Cash Withdrawal Plan
section of the new account application when opening
your account or request a new form from the Fund at
anytime.
FREQUENT TRADING OF FUND SHARES
Except as provided under the systematic cash
withdrawal plan above, the Fund discourages
frequent redemptions or using the Fund as a short-
term trading vehicle; it is intended for long term
investors. Shareholders who make a practice of
frequent buying and selling of Fund shares may not
be permitted to make additional investments in the
Fund. Two times annually is considered frequent
and includes exchanges among portfolios.
PAYMENTS
Payment for shares redeemed normally will be made
within seven days of redemption and will be sent
only to shareholders at the record address.
However, payment may be delayed under unusual
circumstances, as specified in the 1940 Act or as
determined by the Securities and Exchange
Commission. Payment may also be delayed for any
shares purchased by check for a reasonable time
(not to exceed 15 days from the purchase date)
necessary to determine that the purchase check will
be honored. Payment for redemptions above $250,000
may be made by securities in kind.
REDEMPTION OF VERY SMALL ACCOUNTS
In order to reduce the Fund's expenses, the Board
of Directors is authorized to cause the redemption
of all of the shares of any shareholder whose
account has declined to a net asset value of less
than $1,000, as a result of a transfer or
redemption, at the net asset value determined as of
the close of business on the business day preceding
the sending of proceeds of such redemption. The
Fund will give shareholders whose shares were being
redeemed 60 days prior written notice in which to
purchase sufficient shares to avoid such
redemption.
EXCHANGE PRIVILEGE
A shareholder may redeem all or any portion of his
or her Portfolio shares and use the proceeds to
purchase shares of any other Portfolio offered by
the Fund. Any such redemption of shares of another
Portfolio will be effected at the respective net
asset values of such Portfolio. An exchange
transaction is a sale and purchase of shares for
federal income tax purposes and may result in a
capital gain or loss. The registration of both the
account from which the exchange is being made and
the account to which the exchange is made must be
identical.
Exchange requests may be made in writing or by
telephone. Exchange forms may be obtained by
writing or calling the Fund at 800-661-3550 (or
661-3265 in Houston). Written requests should
include the account number of both Portfolios if an
account is already opened, and the amount of the
exchange. If a new account is to be opened by the
exchange, the registration must be identical to
that of the original account. The Fund reserves
the right, at any time and without prior notice, to
suspend, limit, modify or terminate the exchange
privilege or its use in any manner by any person or
class. In particular, since an excessive number of
exchanges may be disadvantageous to the Fund, the
Fund reserves the right to terminate the exchange
privilege of any shareholder who makes four or more
exchanges or redemptions of shares in a year.
DIVIDENDS AND TAX STATUS
The Fund declares dividends from net investment
income and distributions from net capital gains
annually and pays such dividends and distributions,
if any, after year end or as otherwise required for
compliance with Subchapter M of the Internal
Revenue Code. All dividends and distributions in
full and fractional shares of the Fund will be
reinvested based on the record date, unless the
shareholder notifies the Fund that dividends are to
be paid in cash.
The Fund expects to meet the requirements of the
Internal Revenue Code applicable to regulated
investment companies, under which all taxable
income is expected to be distributed to
shareholders. If so qualified, the Fund will not
be subject to federal income taxes on its net
investment income and capital gains, if any,
realized during any fiscal year which it
distributes to its shareholders, provided that at
least 90% of its net investment income earned in
the fiscal year is distributed. The Fund will be
subject to a nondeductible 4% excise tax to the
extent it does not distribute by the end of any
calendar year substantially all of its ordinary
income for that year and capital gain net income
for the one-year period ending on October 31 of
that year, plus certain other amounts. All
dividends from net investment income together with
distributions of net short-term capital gains
(collectively "income dividends") will be taxable
as ordinary income to shareholders even though paid
in additional shares. Long-term capital gains
dividends will be taxable to shareholders as net
long-term capital gains, regardless of the length
of time a shareholder has owned Fund shares.
Dividends and distributions are generally taxable
to shareholders in the year in which received.
However, dividends and distributions in January of
any calendar year will be treated for tax purposes
as if received in the prior calendar year on the
record date for the dividend or distribution, if
the record date was in October, November or
December. The Fund will notify each shareholder
after the close of the calendar year both of the
dollar amount and the tax status of that year's
dividends and distributions.
Gains realized from the sale of securities will
be long or short term, depending on the length of
time owned by the Fund. The Fund may be required
to impose backup withholding at a rate of 31% from
income dividends and capital gain distributions and
upon payment of redemption proceeds if a
shareholder does not comply with federal
requirements relating to the furnishing and
certification of taxpayer identification numbers
and reporting of dividends.
PERFORMANCE INFORMATION
From time to time the Fund may quote its average
annual return ("standardized return") in
advertisements or promotional materials.
Advertisement and promotional materials reflecting
standardized return ("performance advertisement")
will show percentage rates reflecting the average
annual change in the value of an assumed initial
investment in the Fund of $1,000 at the end of one,
five and ten year periods. If such periods have
not yet elapsed, data will be given as of the end
of a shorter period corresponding to the duration
of the Fund. Standardized return assumes the
reinvestment of all dividends and capital gain
distributions.
The Fund's standardized yield may be referred to
in advertising and promotional materials (all such
materials are paid for by Bridgeway Capital
Management, Inc., the Fund's Advisor). The Fund's
standardized yield shows the rate of income that it
earns on its investments, expressed as a percentage
of the net asset value of Fund shares. The Fund
calculates yield by determining the interest income
it earned from its portfolio investments for a
specified thirty-day period (net of expenses),
dividing such income by the average number of Fund
shares outstanding, and expressing the result as an
annualized percentage based on the net asset value
at the end of that thirty day period. Yield
accounting methods differ from the methods used for
other accounting purposes; accordingly, the Fund's
standardized yield may not equal the dividend
income actually paid to investors or the income
reported in the Fund's financial statements. Any
non-standard performance measures will be
accompanied by standard performance measures.
In addition to standardized return, performance
advertisements also may include other total return
performance data ("non-standardized return"). Non
standardized return may be quoted for the same or
different periods as those for which standardized
return is quoted and may consist of aggregate or
average annual percentage rate of return, actual
year by year rates or any combination thereof.
All data included in performance advertisements
will reflect past performance and will not
necessarily be indicative of future results. The
investment return and principal value of an
investment in the Fund will fluctuate, and an
investor's proceeds upon redeeming Fund shares may
be more or less than the original cost of the
shares. The Fund's annual report contains the
first year performance graph and discussion. Call
800-661-3550 for a free copy.
GENERAL INFORMATION
The Fund was incorporated in Maryland on October
19, 1993. Shareholders are entitled to vote for
each full share held (and fractional votes for
fractional shares) and may vote in the election of
Directors and on other matter submitted to meetings
of shareholders. It is not contemplated that
regular annual meetings of shareholders be held.
No amendment may be made to the Articles of
Incorporation without the affirmative vote of the
holders of more than 50% of the Fund's outstanding
shares. The holders of shares have no pre-emptive
or conversion rights. Shares when issued are fully
paid and non-assessable. Coopers & Lybrand L.L.P.
serves as the independent auditors of the Fund.
River Oaks Trust Company acts as custodian of the
Fund's assets. The Fund acts as its own accounting
and shareholder servicing agent and its own
distributor. Shareholder inquiries should be
directed to the Fund at the address and telephone
number indicated on the cover page of this
prospectus.
<PAGE>
INVESTMENT ADVISOR
BRIDGEWAY CAPITAL MANAGEMENT, INC.
5650 KIRBY DRIVE, SUITE 141
HOUSTON, TX. 77005-2443
CUSTODIAN
RIVER OAKS TRUST COMPANY
2001 KIRBY DRIVE
HOUSTON, TX. 77019
TRANSFER AGENT
BRIDGEWAY CAPITAL MANAGEMENT, INC.
5650 KIRBY DRIVE, SUITE 141
HOUSTON, TX. 77005-2443
AUDITORS
COOPERS & LYBRAND L.L.P.
1100 LOUISIANA, SUITE 4100
HOUSTON, TX. 77002
BRIDGEWAY FUND, INC.
5650 KIRBY DRIVE, SUITE 141
HOUSTON, TX. 77005-2443
713 661-3265
800 661-3550
[LOGO]
<PAGE>
BRIDGEWAY FUND, INC.
Statement of Additional Information
Dated June 30, 1997
This Statement of Additional Information is not a prospectus, and it
should be read in conjunction with the prospectus of Bridgeway Fund,
Inc. (the "Fund"), dated June 30, 1997. A copy of the prospectus
may be obtained directly from the Fund, which acts as the distributor
of its own shares, at 5650 Kirby Drive, Suite 141, Houston, Texas
77005-2443, telephone 800-661-3550 or in Houston 661-3265.
TABLE OF CONTENTS
Cross-
reference
to page in
Page the
Prospectus
Investment Objective and Policies 2 6
Risk Factors 2 3
Investment Restrictions 6 10
U.S. Government Securities 7 9
Foreign Securities 7 4
New Issues and Closed End Funds 8 4
Management 8 11
The Management Agreement 9 -
Portfolio Transactions and Brokerage 13 12
Net Asset Value 14 14
Redemption in Kind 14 14
Taxation 14 15
Performance Information 15 16
General Information 16 16
Financial Statements 17 -
1
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund was organized as a series fund with three initial portfolios
or series: Bridgeway Ultra-Small Company Portfolio, Bridgeway
Aggressive Growth Portfolio, and Bridgeway Social Responsibility
Portfolio. On June 30, 1997 the Fund added two new portfolios:
the Ultra-Small Index Portfolio and the Bridgeway 30 Industrials
Portolio. All of these Portfolios have as their investment objective
to provide total return (capital appreciation and
current income), but the Ultra-Small Company, Ultra-Small Index, and
Aggressive Growth Portfolios focus primarily on capital appreciation.
The Portfolios' investment policies are described in the Fund's prospectus.
The Adviser uses hedging strategies to vary the Aggressive Growth and
Social Responsibility Portfolios' exposure to market risk. The
Adviser currently measures market risk by estimating future "betas"
based on the historical betas of individual stocks which make up the
portfolio. Beta is a measure of market risk contained within the body
of financial research called modern portfolio theory. A portfolio
beta of 150% means that a 1% increase (decrease) in the stock market
should result in a 1.5% increase (decrease) in the portfolio.
The Adviser may use up to 5% of the Aggressive Growth Portfolio's net
assets to establish positions in commodities futures and options,
except that the aggregate initial margins and premiums required to
establish such positions in any one commodity may not exceed 2% of net
assets. Subject to these two limiting constraints and applicable
laws, this portfolio (only) may invest in commodity futures and
options for the purpose of diversification in line with the stated
portfolio objective.
The Ultra-Small Company and Ultra-Small Index Portfolios may take temporary,
long, stock index futures positions to offset the effect of cash held for
future investing or for potential redemptions. For example, assume the fund
were 96% invested in stocks and 4% in cash, and it wanted to maintain
100% exposure to market risk, but wanted to defer investment of this
4% to a future date. Then the Portfolio could take a long position in
stock index futures such that the underlying value of securities
represented by the futures did not exceed either the amount of
portfolio cash or 35% of Portfolio total assets.
RISK FACTORS
A discussion of risk for each of the three Fund portfolios appears on
pages 3-5 of the prospectus. Because the Ultra-small Company
Portfolio invests in stocks smaller than those generally available
through mutual funds, the following gives more detailed insights into
their risk and return characteristics. These statistics are based on
the historical record of these financial instruments (asset classes)
and are not the record of the Fund itself. The return numbers include
reinvested interest and dividends, but do not include trading or
operational costs, which a mutual fund would incur. The source of
these data is Marc Reinganum, Journal of Portfolio Management, Spring
1992, and Ibbotson Associates, Stocks, Bonds, Bills, and Inflation,
1995 Yearbook.
Short-term Risk
Table A below indicates that the short-term volatility of Ultra-Small
stocks is much higher than that exhibited by large stocks, bonds, or
Treasury Bills. Investors normally think of investments which exhibit
low short-term volatility as "safe" or "conservative." Because of
high volatility, it would be unwise to invest any money in ultra-small
stocks (or even in large stocks) which an investor needs in a one year
2
<PAGE>
timeframe. Thus, much more so than other common stock mutual funds, it
would be inappropriate to invest money which one needs in the immediate
future in Bridgeway's Ultra-Small Company or Bridgeway's Ultra-Small
Index Portfolio.
Table A also indicates that over longer time periods, investors have
been compensated for higher short-term risk with commensurately higher
returns.
<TABLE>
<CAPTION>
Table A
Short-term Risk Characteristics of Various Asset Classes
(1926-1994)
Govt. Corp. Large Small Ultra-Small
T-Bills Bonds Bonds Stocks Stocks Stocks
<S> <C> <C> <C> <C> <C> <C>
Avg. Annual Return 3.7% 4.8% 5.4% 10.2% 12.2% 16.4%
Std. Deviation 3.3% 8.8% 8.5% 20.3% 34.5% 45.2%
Beta NA NA NA 1.0 1.4 1.7
Worst year decline NA -9.2% -8.1% -43.3% -58.0% -55.7%
Worst year (1940-1992) NA -9.6% -8.1% -26.5% -30.9% -31.2%
% of 1-year declines 0% 28% 23% 29% 30% 30%
% of 3-year declines 0% 15% 13% 13% 21% 18%
% of 5-year declines 0% 9% 5% 11% 14% 14%
% of 10-year declines 0% 2% 0% 3% 3% 0%
Long-term Risk
While most of the statistics on Table A are intuitive (an investor
generally obtains higher returns only when taking on more risk), there
are some surprising risk characteristics of the asset classes over the
longer timeframes. Assets which appear "safe" over the short-term are
particularly vulnerable to the effects of inflation in the long-term.
Table B presents the worst 10-year cumulative return for each of these
assets along with the percentage of 10-year periods from 1926 to 1994
for which returns did not keep up with inflation. On this basis,
stocks do better than T-Bills and bonds, but ultra-small stocks
especially shine. However, past performance may not be predictive of
future results. Our overall conclusion is that ultra-small stocks are
too risky for short-term investments, but are an excellent hedge
against long-term inflation for an investor willing to put up with the
year-to-year volatility one will inevitably experience over any 10-
year period.
<PAGE>
</TABLE>
<TABLE>
<Captions>
Table B
Long-term Risk Characteristics of Various Asset Classes
ADJUSTED FOR INFLATION (1926-1994)
Govt. Corp. Large Small Ultra-Small
T-Bills Bonds Bonds Stocks Stocks Stocks
<S> <C> <C> <C> <C> <C> <C>
Worst 10-year period -40.6% -42.3% -41.3% -31.9% -32.1% +1.0%
% 10-year declines 46.6% 56.9% 50.0% 12.1% 10.3% 0.0%
</TABLE>
Graphs One, Two, Three, and Four present this similar data from yet
another viewpoint. Graph One shows both the higher historical return
and greater volatility for ultra-small stocks versus these other asset
classes. Graph Two presents the average annual return of stocks of
the New York Stock Exchange from smallest size (category "1") to
largest size (category "10") for the same period 1926 to 1994. Graph
Three indicates the higher volatility of annual returns for the ultra-
small stocks and the same ten stock size categories as Graph Two.
Graph Four shows the better protection against inflation for ultra-
small stocks over a ten year timeframe versus the other nine size
categories. According to data from Morningstar and Value Line, most
"large cap" mutual funds have market capitalizations in the 9th and 10
size categories. Most "small cap" mutual funds have market
capitalizations in the 4th through 6th size categories. Bridgeway
Ultra-Small Company and Bridgeway's Ultra-Small Index Portfolios invests
in stocks the size of the smallest category.
<PAGE>
<TABLE>
<CAPTION>
ALL DATA SOURCE DATA IN THESE FOUR GRAPHS IS COPYRIGHT PROTECTED. USED WITH
PERMISSION FROM IBBOTSON ASSOCIATES AND MARC REINGANUM.
EDGAR REPRESENTATION: Graph One--Growth of $1 Invested in 1926 (in dollars)
Ultra- Small Large Govt.
Year Small Stocks Stocks Bonds T-Bills
<S> <C> <C> <C> <C> <C>
1925 1 1 1 1 1
1926 1 1 1 1 1
1927 1 1 2 1 1
1928 2 2 2 1 1
1929 1 1 2 1 1
1930 1 1 2 1 1
1931 1 0 1 1 1
1932 1 0 1 1 1
1933 2 1 1 1 1
1934 3 1 1 2 1
1935 4 1 2 2 1
1936 7 2 2 2 1
1937 3 1 2 2 1
1938 3 1 2 2 1
1939 3 1 2 2 1
1940 2 1 2 2 1
1941 2 1 2 2 1
1942 4 1 2 2 1
1943 10 2 2 2 1
1944 17 3 3 2 1
1945 34 6 4 3 1
1946 28 5 4 3 1
1947 29 5 4 2 1
1948 29 5 4 3 1
1949 35 6 5 3 1
1950 58 9 6 3 1
1951 61 9 8 3 1
1952 63 10 9 3 1
1953 59 9 9 3 1
1954 100 14 14 3 1
1955 122 17 19 3 1
1956 121 18 20 3 1
1957 107 16 18 3 1
1958 191 26 25 3 1
1959 217 30 28 3 2
1960 199 29 28 3 2
1961 258 38 36 3 2
1962 239 34 33 3 2
1963 284 41 40 3 2
1964 356 51 47 3 2
1965 506 73 53 3 2
1966 444 67 48 4 2
1967 869 124 59 3 2
1968 1,420 168 66 3 2
1969 1,050 126 60 3 2
1970 972 104 62 3 2
1971 1,181 121 71 4 2
1972 1,232 127 85 4 3
1973 869 88 73 4 3
1974 721 70 53 4 3
1975 1,258 107 73 5 3
1976 1,946 169 91 5 3
1977 2,296 212 84 5 3
1978 2,734 261 90 5 4
1979 3,970 375 106 5 4
1980 4,821 524 141 5 5
1981 5,412 597 134 5 5
1982 7,416 764 162 7 6
1983 11,363 1,067 199 7 6
1984 10,461 996 211 8 7
1985 14,015 1,241 279 11 7
1986 15,272 1,326 331 14 8
1987 13,984 1,203 348 13 8
1988 16,696 1,478 406 15 9
1989 17,115 1,629 534 17 10
1990 11,779 1,277 517 18 10
1991 17,776 1,848 676 22 11
1992 25,547 2,279 727 24 11
1993 32,823 2,757 764 28 12
1994 32,823 2,843 811 26 13
Graph one shows the growth of five different investments over the last seven decades. The top line
(ultra-small stocks) shows the greatest growth over the whole period, but also bigger "dips" in
periods of economic downturn and more variability/volatility proceeding across time (the "x-axis").
Next in order of decreasing long-term returns and decreasing volatility are small stocks, large
stocks, government bonds, and T-Bills. The T-Bill line shows extremely steady, but mild growth over
the full period.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALL DATA SOURCE DATA IN THESE GRAPHS IS COPYRIGHT PROTECTED. USED WITH
PERMISSION FROM IBBOTSON ASSOCIATES AND MARC REINGANUM.
EDGAR REPRESENTATION: Graph Two--Avg. Annual Returns
Avg. Annual Returns by Size (1926-1994)
Avg.
Annual
Size of Co. Return
<S> <C>
Ultra-Small 16.4%
2 12.9%
3 11.5%
4 12.1%
5 11.5%
6 11.8%
7 11.8%
8 10.5%
9 10.9%
Large 9.0%
Graph two shows company size across the x-axis, going from ultra-small on the left to large on the
right. The y-axis is average annual return for the seven decades of data. The average annual
returns are highest for ultra-small companies on the left side of the graph and generally decline as
companies increase in size on the right.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALL DATA SOURCE DATA IN THESE GRAPHS IS COPYRIGHT PROTECTED. USED WITH
PERMISSION FROM IBBOTSON ASSOCIATES AND MARC REINGANUM.
EDGAR REPRESENTATION: Graph Three--Short-term Volatility by Size (1926-1994)
Standard
Dev. of
Annual
Size of Co. Returns
<S> <C>
Ultra-Small 45.8%
2 35.9%
3 32.8%
4 31.2%
5 27.8%
6 28.2%
7 27.0%
8 23.8%
9 22.5%
Large 19.2%
Graph three shows company size across the x-axis, going from ultra-small on the left to large on the
right. The y-axis is standard deviation of annual returns for the seven decades of data. The
standard deviation is highest for ultra-small companies on the left side of the graph and generally
declines as companies increase in size on the right.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALL DATA SOURCE DATA IN THESE GRAPHS IS COPYRIGHT PROTECTED. USED WITH
PERMISSION FROM IBBOTSON ASSOCIATES AND MARC REINGANUM.
EDGAR REPRESENTATION: Graph Four--Worst Inflation-Adjusted 10-Yr. Period (1926-1994)
Worst
Inflation
Adjusted
10-Yr.
Size of Co. Period
<S> <C>
Ultra-Small 1.0%
2 -24.1%
3 -33.5%
4 -15.3%
5 -25.1%
6 -26.9%
7 -29.0%
8 -24.1%
9 -32.9%
Large -31.6%
Graph four shows company size across the x-axis, going from ultra-small on the left to large on the
right. The y-axis is the worst ten year returns, based on rolling ten year return periods over the
last seven decades. The worst ten year period for ultra-small stocks on the left is very slightly
positive--1.0%. The worst ten year period for the other sizes are substantially negative, but these
are not in straight line order as each of the previous two graphs nearly were.
</TABLE>
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions (in addition to those
indicated in its prospectus) as fundamental policies, which may not be
changed without the favorable vote of the holders of a "majority," as
defined in the Investment Company Act of 1940 (the "1940 Act"), of the
Fund's outstanding voting securities. Under the 1940 Act, the vote of
the holders of a majority of a Fund's outstanding voting securities
means the vote of the holders of the lesser of (i) 67% of the shares
of the Fund represented at a meeting at which the holders of more than
50% of its outstanding shares are represented or (ii) more than 50% of
the outstanding shares.
As indicated in the following list, the Fund's three portfolios may
not:
1. Purchase securities on margin, except such short-term credits
as may be necessary for the clearance of transactions.
2. Make short sales of securities or maintain a short position
if such sales or positions exceed 20% of total assets under
management.
3. Issue senior securities, except that the Aggressive Growth
and Social Responsibility Portfolios may borrow on a secured or
unsecured basis from banks up to 50% of net assets (not including the
amount borrowed) for the purchase of securities, and any Portfolio may
borrow on a secured or unsecured basis from banks up to 5% of its
total assets on an unsecured basis from banks for temporary or
emergency purposes.
4. Invest in options or futures if the aggregate initial margins
and premiums required to establish such non-hedging positions exceed
5% of net assets. In addition, the Ultra-Small Company, Ultra-Small
Index, and Bridgeway 30 Industrials Portfolios may not invest in any
options and may invest in stock market index futures
only as described in the Prospectus.
5. Invest in options or futures on individual commodities if
the aggregate initial margins and premiums required to establish such
positions exceed 2% of net assets. In addition, only the Aggressive
Growth Portfolio may invest in any commodity options or futures.
6. Buy or sell real estate, real estate limited partnership
interests or other interest in real estate (although it may purchase
and sell securities which are secured by real estate and securities or
companies which invest or deal in real estate.)
7. Make loans (except for purchases of publicly-traded debt
securities consistent with the Fund's investment policies); however, the
Aggressive Growth, Ultra-Small Index, and Bridgeway 30 Industrials
Portfolios may lend its portfolio securities to others on a fully
collateralized basis.
8. Make investments for the purpose of exercising control or
management.
9. Act as underwriter (except to the extent the Fund may be
deemed to be an underwriter in connection with the sale of securities
in the Fund's investment portfolio.) (This restriction in no way
prevents the Fund from acting as distributor of its own shares
pursuant to a 12b-1 Plan adopted by shareholders on October 15, 1996.)
10. Invest 25% or more of its total assets (calculated at the
time of purchase and taken at market value) in any one industry.
11. As to 75% of the value of its total assets, invest more than
5% of the value of its total assets in the securities of any one
issuer (other than obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities), or purchase more than
10% of all outstanding voting securities of any one issuer.
The Fund observes the following restrictions as a matter of operating
but not fundamental policy, pursuant to positions taken by federal and
state regulatory authorities:
The Fund may not:
12. Purchase any security if as a result the Fund would then hold
more than 10% of any class of securities of an issuer (taking all
common stock issues as a single class, all preferred stock issues as a
single class, and all debt issues as a single class).
13. Invest in securities of any issuer if, to the knowledge of
the Fund, any officer or director of the Fund or of the Adviser owns
more than 1/2 of 1% of the outstanding securities of such issuer, and
such directors who own more than 1/2 of 1% own in the aggregate more
than 5% of the outstanding securities of such issuer.
14. Invest more than 5% of the value of its net assets in
warrants (included in that amount, but not to exceed 2% of the value
of the Fund's net assets, may be warrants which are not listed on the
New York or American Stock Exchange). In addition, the Ultra-Small
Company, Ultra-Small Index, and Bridgeway 30 Industrials Portfolios
may not purchase any warrants.
15. Invest in any security if as a result the Fund would have
more than 5% of its total assets invested in securities of companies
which together with any predecessor have been in continuous operation
for fewer than three years.
16. Invest in oil, gas or mineral related programs, partnerships
or leases.
17. Invest in securities of any open-end investment company as
long as its securities are registered for sale in the State of
California or held by California residents; unless, however, both a)
any such investment does not include the payment of any sales load or
sales charges and b) the Fund's investment adviser does not charge any
management fee on the balances held in any such investment. The Fund
may, however, invest cash in a money market fund for potential
redemptions, awaiting reinvestment, or as a temporary defensive move.
U.S. GOVERNMENT SECURITIES
The U.S. Government securities in which the Fund may invest include
direct obligations of the U.S. Treasury, such as Treasury bills, notes
and bonds, and obligations issued or guaranteed by U.S. Government
agencies and instrumentalities, including securities that are
supported by the full faith and credit of the United States, such as
Government National Mortgage Association ("GNMA") certificates,
securities that are supported by the right of the issuer to borrow
from the U.S. Treasury, such as securities of the Federal Home Loan
Banks, and securities solely by the credit worthiness of the issuer,
such as Federal National Mortgage Association ("FNMA") and Federal
Home Loan Mortgage Corporation ("FHLMC") securities.
FOREIGN SECURITIES
The Fund may invest up to 10% of its assets in foreign securities
traded on Exchanges in the United States. Foreign securities carry
incremental risk associated with: (1) currency fluctuations; (2)
restrictions on, and costs associated with, the exchange of
currencies; (3) the difficulty in obtaining or enforcing a court
judgment abroad; (4) reduced levels of publicly available information
concerning issuers; (5) restrictions on foreign investment in other
jurisdictions; (6) reduced levels of governmental regulation of
foreign securities markets; (7) difficulties in transaction
settlements and the effect of this delay on shareholder equity; (9)
foreign withholding taxes; (10) political, economic, and similar
risks, including expropriation and nationalization; (11) different
accounting, auditing, and financial standards; (12) price volatility;
and 13) reduced liquidity in foreign markets where the securities also
trade. While some of these risks are reduced by investing only in
ADR's and foreign securities listed on American exchanges, even these
foreign securities may carry substantial incremental risk.
NEW ISSUES AND CLOSED END FUNDS
The Fund may invest up to 5% of total assets in the securities of
"unseasoned issuers". These companies have less historical data on
which to evaluate past performance, are usually small companies, and
thus may exhibit higher volatility and risk than other issues. The
Fund may also invest up to 5% of total assets in closed end mutual
funds. These securities may sell at a premium or discount to the net
asset value of their underlying securities. While gaining further
diversification through such investments, the Fund will bear the
additional volatility and risk that, in addition to changes in value
of the underlying securities in the closed end funds, there may be
additional increase or decrease in price due to a change in the
premium or discount in their market prices.
MANAGEMENT
The overall management of the business and affairs of the Fund in
vested with its Board of Directors. The Board approves all
significant agreements between the Fund and persons or companies
furnishing services to it, including the Fund's agreement with its
Adviser, Custodian and Transfer Agent. The day to day operations of
the Fund are delegated to its officers, subject to the investment
objectives and policies of the Fund and to general supervision by the
Board of Directors.
<PAGE>
The directors and officers of the Fund and of the Adviser, their
business address and principal occupations during the past five years
are
Position
with the Principal Occupation
Fund
John N.R. President President of the Fund and
Montgomery* and the Adviser, self employed
Director from 12/1991 to 7/1993.
Prior to that he was an
executive with
transportation agencies in
Texas and N. Carolina and
an engineer/project manager
at MIT.
Karen S. Gerstner Director Attorney and managing
partner, Dinkins Kelly
Lenox Gerstner & Lamb, LLP
Houston, Texas.
Miles Douglas Director Vice President, Wood,
Harper,III Harper, PC, a CPA firm in
Houston, Texas, since
2/1991, Senior Staff
Accountant Pannell Kerr &
Forster 1990-91, Senior
Staff Accountant, Price
Waterhouse 1986-90.
Glen Feagins Treasurer Vice-President/Treasurer of
another mutual fund family
from 1987 to 1992. Self-
employed consultant in the
mutual fund industry and
employee of Bridgeway Capital
Management since 1994.
Joanna Schima Secretary Owner of small business
1988-1993, prior to that,
Telecommunications Manager
for American Capital
Management & Research,
Inc., Houston, Texas
*denotes directors who are "interested persons" of the Fund under the
1940 Act.
The address of all of the Directors and Officers of the Fund is 5650
Kirby Drive, Suite 141, Houston, Texas, 77005-2443.
The Fund pays fees of $350 per meeting to directors who are not
"interested persons" of the Fund. Such directors are reimbursed for
any expenses incurred in attending meetings. During fiscal year 1996,
the directors received the following compensation:
<TABLE>
<CAPTION>
Aggregate Pension or Estimated Annual Total
Compensation Retirement Benefits Upon Compensation
Name of Director from Fund Benefits Accrued Retirement from the Fund
<S> <C> <C> <C> <C>
Karen Gerstner $1,200 N/A N/A $1,200 /1/
Miles Douglas
Harper, III $1,200 N/A N/A $1,200 /1/
John N.R.
Montgomery $ 0 N/A N/A $ 0
/1/ The directors received this compensation in the form of shares of the
Fund, credited to his or her account.
</TABLE>
THE MANAGEMENT AGREEMENT
Subject to the supervision of the Board of Directors, investment
advisory, management and administration services are provided to the
Fund by Bridgeway Capital Management, Inc., (the "Adviser") pursuant
to an Investment Management Agreement dated May 26, 1994 as amended on
September 4, 1996 (the "Agreement"). A second Investment Management Agreement
dated May 26, 1997 addresses managment of the new portfolios (i.e. the
Ultra-Small Index Portfolio and the Bridgeway 30 Industrials Portfolio).
The Adviser is a Texas corporation organized in 1993 to act as Adviser to
the Fund and is controlled by Mr. John N. R. Montgomery and his family.
Under both Agreements, the Adviser will provide a continuous investment
program for the Fund and make decisions and place orders to buy, sell
or hold particular securities. The Adviser also will supervise all
matters relating to the operation of the Fund and will obtain for it
corporate officers, clerical staff, office space, equipment and
services.
As compensation for Adviser services rendered to the Ultra-Small Index and
Bridgeway 30 Industrials Portfolios, and the charges and expenses assumed
and to be paid by the adviser as described above, these Portfolios pay
the Adviser a base fee computed and payable on or promptly after the last
market day of each month at the following annual rate:
.5% of the value of the Ultra-Small Index Portfolio's
average daily net assets and
.08% of the value of the Bridgeway 30 Industrials Portfolio's
average daily net assets
As compensation for its services rendered and the charges and expenses
assumed and to be paid by the Adviser as described above, the Aggressive
Growth, Social Responsibility, and Ultra-Small Company Portfolios
pays the Adviser a base fee computed and payable promptly after the last
market day of each month at the following annual rate:
.9% of the value of the Portfolio's average daily net assets
during such month up to $250,000,000;
.875% of the next $250,000,000 of such assets; and
.85% of such assets over $500,000,000,
except that the fee for the Ultra-Small Company Portfolio during the
period that the Portfolio's net assets range from $27.5 million to $55
million will be paid as if the Portfolio had $55,000,000 under
management (that is, $55 million times .009 equals $495,000), subject
to a maximum 1.49% annual rate.
For purposes of calculating such fee, average daily net assets shall
be computed by adding the total asset values less liabilities of each
Portfolio as computed by the Adviser each day (during the month and
dividing the resulting total by the number of days in the month).
Expenses and fees of each Portfolio, including the advisory fee, will
be accrued daily and taken into account in determining net asset
value. For any period less than a full month during which this
agreement is in effect, the fee shall be prorated according to the
proportion which such period bears to a full month.
The Aggressive Growth and Social Responsibility Portfolio base fee
described above will be adjusted each quarterly period (as defined
below) by adding to or subtracting from such rate, when appropriate,
the applicable performance adjustment rate percentage as described
below. The resulting advisory fee rate will then be applied to the
average daily net asset value of the Fund for the succeeding quarterly
period. The advisory fee will be paid monthly and will be one-twelfth
(1/12th) of the resulting dollar figure.
The performance adjustment rate shall vary with the Fund's performance
as compared to the performance of the Standard & Poor's 500 Composite
Stock Price Index with dividends reinvested (hereinafter "Index" or "S
& P 500 Index") and will range from -.7% to +.7%; the performance rate
adjustment will be calculated at 4.76% of the difference between the
performance of the Fund and that of the Index, except that there will
be no performance adjustment if the difference between the Fund
performance and the Index performance is less than or equal to 2%.
The graph and table in the Prospectus (see "Management of the Fund")
illustrate the relationship between the advisory fee and the fund
performance relative to the Index.
The performance period shall consist of the most recent five year
period ending on the last day of the quarter (March, June, September,
and December) that the New York Stock Exchange was open for trading.
For example, on February 15, 2000, the relevant five year period would
be from Friday, December 30, 1994 through Friday, December 31, 1999.
The performance of the Index will be the 5 year percentage increase
(or decrease) in the capitalization weighted S & P 500 Index with
dividends reinvested. The Fund performance will be the percentage
increase (or decrease) of the portfolio net asset value per share over
the performance period and will be calculated as the sum of: 1) the
change in the portfolio unit value during such period, 2) the unit
value of portfolio distributions from income or capital gains (long or
short term) having an ex-dividend date occurring within the
performance period and assumed to have been reinvested at the net
asset value on ex-date, and 3) the unit value of capital gains taxes
paid or accrued during the performance period of undistributed
realized capital gains, if any. Thus, the Fund performance will be in
accordance with SEC standardized total return formula.
The adjustment to the Basic Advisory Fee will not be cumulative. An
increased fee will result even though the performance of the Fund over
some period of time shorter than the Performance Period has been
behind that of the Index and, conversely, a reduction in the Basic
Advisory Fee will be made for a month even though the performance of
the Fund over some period of time shorter than the performance Period
has been ahead of that of the Index.
As indicated above, the Fund's expenses (including the monthly Basic
Advisory fee) will be accrued daily. The performance adjustment for
each performance fee period will be computed monthly and accrued daily
in the subsequent monthly period and taken into account in computing
the daily net asset value of a Fund Portfolio's share. However, the
expenses in excess of any maximum expense limitation that is assumed
by the Fund's Adviser, if any, shall not be accrued for the purpose of
computing the daily net asset value of a Fund share.
Since the Fund does not have a five year operating history, the
performance rate adjustment will be calculated as follows during the
initial five year period.
(a) From Fund inception through April 30, 1995, the
performance rate adjustment was not operative. The advisory
fee payable was the base fee only.
(b) From April 30, 1995 through September 30, 1999, the
performance rate adjustment fee will be calculated based upon
a comparison of the investment performance of each Portfolio
and the Index over the number of quarters that have elapsed
since the Fund began operations. Each time the performance
adjust-ment fee is calculated, it will cover a longer time
span, until it can cover a running five year period as
intended. In the meantime, the early months of the transition
period will have a disproportionate effect on the performance
adjustment of the fee.
During the period from July 1, 1995 through June 30, 1996 and in
accordance with the management fee schedules described above, the
Adviser received the following advisory fees from each of the
Portfolios:
<TABLE>
<CAPTION>
Advisory Fee Expense Waived Waived
Portfolio Per Contract Reimbursement Advis. Fees Accounting Fee
<S> <C> <C> <C> <C>
Ultra-Small Company $14,056 ($0) ($14,056) ($3,369)
Aggressive Growth $8,037 ($9,579) ($8,037) ($10,090)
Social Responsibility $1,416 ($21,098) ($1,416) ($10,090)
</TABLE>
The Net Advisory Fees were paid at the end of each quarter after the
earned fee was adjusted for any expense overage in accordance with the
Adviser's undertaking that "total Fund Operating Expenses would not
exceed 2.5%." This is in accordance with Rule 260.140.85(a) of the
California Code of Regulations dealing with expense limitations which
the Fund has undertaken to comply with. The Adviser has been and is,
as of the date of this prospectus, voluntarily reimbursing the Fund to
maintain an expense ratio of 2.0%, 2.0% and 1.5% for the Ultra-Small
Company, Aggressive Growth and Social Responsibility Portfolios,
respectively.
In addition to the fee payable to the Adviser, the Fund is responsible
for its operating expenses, including: (1) the charges and expenses of
any custodian or depository appointed by the Fund for the safekeeping
of its cash, securities and other property, (2) the charges and
expenses of bookkeeping personnel, auditors, and accountants, computer
services and record keeping, (3) the charges and expenses of any
transfer agents and registrars appointed by the Fund, (4) brokers'
commissions and issue and transfer taxes chargeable to the Fund in
connection with securities transactions to which the Fund is a party,
(5) all taxes and corporate fees payable by the Fund to federal, state
or other government agencies, (6) the cost of stock certificates (if
any) representing shares of the Fund, (7) fees and expenses involved
in registering and maintaining registrations of the Fund and of its
shares with the Securities and Exchange Commission and qualifying its
shares under state or other securities laws, including the preparation
and printing of prospectuses used for these purposes and for
shareholders of the Fund, (8) all expenses of shareholders' and
directors' meetings and of preparing and printing reports to
shareholders, (9) charges and expenses of legal counsel for the Fund
in connection with legal matters relating to the Fund, including
without limitation, legal services rendered in connection with the
Fund's corporate existence, corporate and financial structure and
relations with its shareholders, registrations and qualifications of
securities under federal, state and other laws, issues of securities
and expenses which the Fund has herein assumed, (10) compensation of
directors who are not interested persons of the Adviser, (11) interest
expense, (12) insurance expense, and (13) association membership dues.
Under the Agreement, the Adviser will not be liable to the Fund for
any error of judgment by the Adviser or any loss sustained by the Fund
except in the case of a breach of fiduciary duty with respect to the
receipt of compensation for services (in which case any award of
damages will be limited as provided in the 1940 Act) or of willful
misfeasance, bad faith, gross negligence or reckless disregard of
duty.
The Fund acts as the distributor of its shares pursuant to a 12b-1
Plan expected to be adopted by shareholders on October 15, 1996. The
cost of distributing shares of the Fund is borne by the Adviser at no
cost to the Fund; thus, there is no "12b-1 fee."
The Agreement was first approved by the Board of Directors on January
17, 1994 and amended on September 4, 1996 by a majority of the
Directors who neither are interested persons of the Fund nor have any
direct or indirect financial interest in the Agreement or any other
agreement related thereto ("Independent Directors"). The current
contract continues through June 30, 1997. If not terminated, the
Agreement will continue automatically for successive annual periods,
provided that such continuance is specifically approved at least
annually (i) by a majority vote of the independent Directors cast in
person at a meeting called for the purpose of voting on such approval,
and (ii) by the Board of directors or by vote of a majority of the
outstanding voting securities of the Fund. It's continuance was
approved by unanimous vote of the Board of Directors, including a
majority of directors not considered "interested persons" as defined
in the 1940 Act, at a meeting held in person on May 3, 1995.
The Agreement is terminable by vote of the board of directors or by
the holders of a majority of the outstanding voting securities of a
Fund Portfolio at any time without penalty, on 60 days written notice
to the Adviser. The Agreement also may be terminated by the Adviser
on 60 days written notice to the Fund. The Agreement terminates
automatically upon its assignment (as defined in the 1940 Act).
In addition to the stringent code of ethics described on page 11 of
the prospectus, the Adviser has a unique mission statement which sets
it apart from others in the industry:
Our mission is to:
- oppose and alleviate the effects of genocide and
oppression,
- support Christian service,
- nurture educational causes, and
- improve the quality of urban life.
Our role in this effort is primarily, but not exclusively, a
financial one. As stewards of others' money, we strive to:
- uphold the highest standards of integrity.
- maintain a long term risk-adjusted investment perfor-
mance record in the top 5% of investment advisers,*
- provide extraordinary service quality,
- achieve a superior (efficient) cost structure,
and
Our greatest resource is people. Recognizing this, we strive to:
- create a positive, fun, and challenging atmosphere,
- provide fair compensation commensurate with
performance,
- give regular, peer feedback,
- spend resources lavishly on hiring and training, and
- value the family.
*The Adviser can not promise future performance levels, nor do past
results guarantee future returns. However, the Adviser and the Fund
have committed to clearly communicating performance versus industry
benchmarks in each quarterly report to shareholders.
The Adviser is also committed to donating a majority of its own
investment advisory fee profits to charitable and non-profit
organizations. To maximize this objective, the adviser seeks a
superior cost structure. There are no expensive perks or luxurious
offices. The quantitative investment methods used do not require a
large research staff. Employees are paid commensurate with
performance and market salary scales, but subject to the following
cap: the total compensation of the highest paid employee can not be
more than seven times that of the lowest paid employee. These
policies should also contribute to lower Fund expense ratios as assets
grow.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Agreement states that in connection with its duties to arrange for
the purchase and the sale of securities held in the portfolio of the
Fund, the Adviser shall select such broker-dealers ("brokers") as
shall, in its judgment, achieve the policy of "best execution", i.e.,
prompt and efficient execution at the most favorable securities price.
In making such selection, the Adviser is authorized by the Agreement
to consider the reliability, integrity and financial condition of the
broker. The Adviser also is authorized by the Agreement to consider
whether the broker provides research or statistical information to the
Fund and/or other accounts of the Adviser.
The Agreement states that the commissions paid to brokers may be
higher than another broker would have charged if a good faith
determination is made by the Adviser that the commission is reasonable
in relation to the services provided, viewed in terms of either that
particular transaction or the Adviser's overall responsibilities as to
the accounts as to which it exercises investment discretion and that the
Adviser shall use its judgment in relation to the value of brokerage
and research services provided and need not place or attempt to place
a specific dollar value on such services or on the portion of
commission that such determinations were in good faith, and to show
the overall reasonableness of commission paid, the Adviser shall be
prepared to show that commissions paid (i) were for services
contemplated by the Agreement; and (ii) were for products or services
which provide lawful and appropriate assistance to its decision-making
process; and (iii) were within a reasonable range as compared to the
rates charged by brokers to other institutional investors as such
rates may become known from available information.
The research services discussed above may be in written form or
through direct contact with individuals and may include information as
to particular companies and securities as well as market, economic or
institutional areas and information assisting the Fund in the
valuation of its investments. The research which the Adviser receives
for the Fund's brokerage commissions, whether or not useful to the
Fund, may be useful to it in managing the accounts of its other
advisory clients, if any. Similarly, the research received for the
commissions of such accounts may be useful to the Fund. In its last
fiscal year ending June 30, 1996, the Fund's Portfolios paid brokerage
commissions totaling $22,431, as follows:
<TABLE>
<CAPTION>
Brokerage
Portfolio Commissions Paid
<S> <C>
Aggressive Growth $ 5,869
Social Responsibility $ 233
Ultra-Small Company $16,329
</TABLE>
Since the Adviser's present policy is to conduct all of its own
financial research and not to pay soft dollar commissions of any kind,
brokerage decisions are currently made on the basis of price and
execution only.
NET ASSET VALUE
The net asset value of the Fund's shares will fluctuate and is
determined as of the close of trading on the New York Stock Exchange
(currently 4:00 p.m. Eastern time) each business day that the Exchange
is open for business. The Exchange annually announces the days on
which it will not be open for trading. The most recent announcement
indicates that it will not be open on the following days: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. However, the Exchange
may close on days not included in that announcement.
The net asset value per share of each of the Fund's Portfolios is
computed by dividing the value of the securities held by the Portfolio
plus any cash or other assets (including interest and dividends
accrued but not yet received) minus all liabilities (including accrued
expenses) by the total number of Portfolio shares outstanding at such
time.
Portfolio securities that are principally traded on a national
securities exchange or the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") are valued at their last sale on
the exchange on which they are principally traded prior to the close
of the New York Stock Exchange or, in the absence of recorded sales,
at their current bid price (long position) or asked price (short
positions.) Other securities and assets for which market quotations
are not readily available are valued at fair value as determined in
good faith using methods approved by the Board of Directors.
REDEMPTION IN KIND
If the Board of Directors determines that it would be detrimental to
the best interests of the remaining shareholders of the Fund to make
payment wholly in cash, the Fund may pay the redemption price in part
by a distribution in kind of securities from the portfolio of the
Fund, in lieu of cash. The Fund has elected to be governed by Rule
18F-1 under the 1940 Act pursuant to which the Fund is obligated to
redeem shares solely in cash up to the lesser of $250,000 or one
percent of the net asset value of the Fund during any 90 day period
for any one shareholder. Should redemptions by any shareholder exceed
such limitation, the Fund will have the option of redeeming the excess
in cash or in kind. If shares are redeemed in kind, the redeeming
shareholder would incur brokerage costs in converting the assets into
cash.
TAXATION
For the current and all subsequent fiscal years, the Fund intends to
elect to be and to qualify for treatment as a regulated investment
company ("RIC") under Subchapter M of the Internal Revenue Code (the
"Code"). In each taxable year that the Fund so qualifies, the Fund
will be relieved of federal income tax on that part of its investment
company taxable income (consisting generally of interest and dividend
income and net short term capital gain) and net capital gain that is
distributed to shareholders. Since the Fund intends to engage in
various hedging transactions, under various provisions of the Code,
the result of such transactions may be to change the character of
recognized gains or losses, accelerate the recognition of certain
gains and losses, and defer the recognition of certain losses.
In order to qualify for treatment as an RIC, the Fund must distribute
annually to its shareholders at least 90% of its investment company
taxable income and must meet several additional requirements. They
include (1) at least 90% of the Fund's gross income each taxable year
must be derived from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of
securities or foreign currencies, or other income derived with respect
to it business of investing in securities or currencies; (2) less than
30% of the Fund's gross income each taxable year may be derived from
the sale or other disposition of securities held for less than three
months; (3) at the close of each quarter of the Fund's taxable year,
at least 50% of the value of its total assets must be represented by
cash and cash items, U.S. Government securities, securities of other
RICs and other securities, limited in respect of any one issuer, to an
amount that does not exceed 5% of the value of the Fund, and that does
not represent more than 10% of the outstanding voting securities of
such issuer; and (4) at the close of each quarter of the Fund's
taxable year, not more than 25% of the value of its assets may be
invested in securities (other than U.S. Government securities or the
securities of other RICs) of any one issuer.
The Fund will be subject to a nondeductible 4% excise tax to the
extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital
gain net income for the one-year period ending on October 31st of that
year, plus certain other amounts.
Dividends and Distributions
Dividends from the Fund's investment company taxable income (whether
paid in cash or invested in additional shares) will be taxable to
shareholders as ordinary income to the extent of the Fund's earnings
and profits. Distributions of the Fund's net capital gains (whether
paid in cash or invested in additional shares) will be taxable to
shareholders as long-term capital gain, regardless of how long they
have held their Fund shares.
Dividends declared by the Fund in October, November, or December of
any year and payable to shareholders of record on a date in one of
such months will be deemed to have been paid by the Fund and received
by the shareholders on the record date if the dividends are paid by
the Fund during the following January. Accordingly, such dividends
will be taxed to shareholders for the year in which the record date
falls.
Withholding
The Fund is required to withhold 20% of all dividends, capital gain
distributions and repurchase proceeds payable to any individuals and
certain other non corporate shareholders who do not provide the Fund
with a correct taxpayer identification number. The Fund also is required
to withhold 31% of all dividends and capital gain distributions paid
to such shareholders who otherwise are subject to backup withholding.
PERFORMANCE INFORMATION
Total Return
Average annual total return quotations, used in the Fund's advertising
and promotional material, for the 1,5 and 10 year periods (when
available) ended on the date of the most recent balance sheet included
in the registration statement are determined by finding the average
annual compounded rates of return over the 1, 5, and 10 year periods
that would equate the initial amount invested to the ending redeemable
value, by the following formula:
P((1 + T) raised to the power of n ) = ERV
where "P" equals hypothetical initial payment of $1,000; "T" equals
average annual total return; "n" equals the number of years; and "ERV"
equals the ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of the 1, 5, or 10
years periods at the end of the 1, 5, or 10 year periods (or
fractional portion thereof).
Any disclosure will also include the length of and the last day in the
period used in computing the quotation and a description of the method
by which average total return is calculated.
Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the
most recent quarter prior to submission of the advertising for
publication. Average annual total return, or "T" in the formula, is
computed by finding the average annual compounded rates of return over
the period that would equate the initial amount invested to the ending
redeemable value. Average annual total return assumes the
reinvestment of all dividends and distributions.
Yield
Annualized yield quotations based on a 30-day (or one month) period
ended on the date of the most recent balance sheet included in the
Fund's registration statement, and used in the Fund's advertising and
promotional materials are computed by dividing the net investment
income per share earned during the period by the maximum offering
price per share on the last day of the period, according to the
following formula:
YIELD = 2 [ ( ( ( (a-b) / cd) + 1) raised to the power of 6) - 1 ]
where "a" equals dividends and interest earned during the period; "b"
equals expenses accrued for the period, (net of reimbursements); "c"
equals the average daily number of shares outstanding during the
period that are entitled to receive dividends and "d" equals the
maximum offering price per share on the last day of the period.
Any such disclosure will also include the length of and the last day
in the period used in computing the quotation and a description of the
method by which yield is calculated.
Except as noted below, in determining net investment income earned
during the period ("a" in the above formula), the Fund calculates
interest earned on each debt obligation held by it during the period
by (1) computing the obligation's yield to maturity, based on the
market value of the obligation (including actual accrued interest) on
the last business day of the period or, if the obligation was
purchased during the period, the purchase price plus accrued interest;
(2) dividing the yield to maturity by 360 and multiplying
the resulting quotient by the market value of the obligation
(including actual accrued interest). Once interest earned is
calculated in this fashion for each debt obligation held by the Fund,
net investment income is then determined by totaling all such interest
earned.
For purposes of these calculations, the maturity of an obligation with
one or more call provisions is assumed to be the next date on which
the obligation reasonably can be expected to be called or, if not, the
maturity date.
Other Information
The Fund's performance data quoted in advertising and other
promotional materials represents past performance and is not intended
to predict or indicate future results. The return and principal value
of an investment in the Fund will fluctuate, and an investor's
redemption proceeds may be more or less than the original investment
amount. In advertising and promotional materials the Fund may compare
its performance with data published by Lipper Analytical Services,
Inc. ("Lipper"), Morningstar, Inc. ("Morningstar") or CDA Investment
Technologies, Inc. ("CDA"); Fund rankings and other data, such as
comparative asset, expense and fee levels, published by Lipper,
Morningstar or CDA; and advertising and comparative mutual fund data
and ratings reported in independent periodicals including, but not
limited to, The Wall Street Journal, Money, Forbes, Value Line,
Business Week, Financial Word and Barron's.
GENERAL INFORMATION
The Fund, incorporated in the State of Maryland on October 19, 1993 is
authorized to issue 1,000,000,000 shares of common stock, $.001 par
value (the "Common Stock"). Shares of the Fund, when issued, are
fully transferable and redeemable at the option of the Fund in certain
circumstances as described in the Fund's Prospectus under "How to
Redeem Shares." All Fund shares are equal as to earnings, assets, and
voting privileges. There are no conversion, pre-emptive or other
subscription rights. Under the Fund's Articles of Incorporation, the
Board of Directors may authorize the creation of additional series of
common stock, with such preferences, privileges, limitations and
voting and dividend rights as the Board may determine. Each share of
each series of the Fund's outstanding shares is entitled to share
equally in dividends and other distributions and in the net assets
belonging to that series of the Fund on liquidation. Accordingly, in
the event of liquidation, each share of the Fund's common stock is
entitled to its portion of all of the Fund's assets after all debts
and expenses have been paid. The shares of the Fund do not have
cumulative voting rights for the election of Directors.
It is not contemplated that regular annual meetings of shareholders
will be held. There normally will be no meetings of shareholders for
the purpose of electing directors unless and until such time as less
than a majority of the directors holding office have been elected by
shareholders, at which time the directors then in office will call a
shareholders' meeting for the election of directors. The Fund has
undertaken to afford shareholders certain rights, including the right
to call a meeting of shareholders for the purpose of voting on the
removal of one or more directors. Such removal can be effected upon
the action of two-thirds of the outstanding shares of the Fund. The
directors are required to call a meeting of shareholders for the
purpose of voting on the question of removal of any director when
requested in writing to do so by shareholders of record of not less
than 10% of the Fund's outstanding shares. The directors will then,
if requested by the applicants, mail at the applicants' expense the
applicants' communication to all other shareholders.
The following individuals own more than 5% of the outstanding shares
of each portfolio of the Fund as of June 30, 1996.
<TABLE>
<CAPTION>
Percentage Ownership
Ultra- Aggr. Social
Name Address Small Growth Respons. Total
<S> <C> <C> <C> <C> <C>
Hays, B. 2245 Maroneal 5.3% 1.9%
Houston, TX 77030
Axness, W. 7522 Live Oak Dr. 5.6% 2.7%
Humble, TX 77396
Stevens, J. D. 3139 Prescott St 7.5% 3.6%
Houston, TX 77025
Kern, K. 4444 Richmond 12.2% 5.8%
Houston, TX 77027
Technical Risks 2020 N. Memorial 6.0% 9.1% 23.6% 7.8%
Way Houston, 77007
Silard, J. 6916 Wilson Ln. 15.1% 1.9%
Bethesda, MD 20817
Montgomery, J. 3214 Tangley 7.9% 2.2%
Houston, TX 77005
Webb, J. 4211 Sunset Blvd 5.4% 0.6%
Houston, TX 77005
Gross, G. 9202 Triola Lane 16.2% 2.5%
Houston, TX 77036
Donaldson, Lufkin P.O. Box 2052 10.9% 8.3%
and Jenrette & Co. Jersey City, NJ 07303
Total above 16.9% 39.8% 8.2% 37.2%
All officers/directors 1.9% 6.2% 12.5% 3.5%
</TABLE>
FINANCIAL STATEMENTS
The Fund's 1996 Annual Report to Shareholders was mailed to
shareholders on September 13, 1996; it will be sent to any other
interested party upon written request to the Fund.
<PAGE>
BRIDGEWAY FUND, INC.
Part C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(b) Exhibits
1. Charter of Registrant (Incorporated by reference)
2. By-laws of Registrant (Incorporated by reference)
3. Inapplicable
4. Inapplicable as By-Laws provide for no
stock certificates
5. Management Contracts for
The Ultra-Small Company Portfolio, the Aggressive
Growth Portfolio and the Social Responsibility
Portfolio (Incorporated by reference)
The Ultra-Small Company Index Fund and the
Bridgeway 30 Industrials Portfolio
6. Inapplicable
7. Inapplicable
8. Custodian Agreement (Incorporated by reference)
9. None as Registrant will act as its own transfer agent
10. Opinion of Counsel (Incorporated by reference)
11. Consent of Independent Auditors
12. Inapplicable
13. Investment Representation letter from initial
sharehholders(Incorporated by reference)
14. Inapplicable
15. 12b-1 Plan (Incorporated by reference)
16. Inapplicable
Item 25. Persons controlled by or under Common Control with
Registrant
NONE
Item 26. Number of Holders of Securities
(1) (2)
Number of Record Holders
Title of Class as of June 30, 1996.
Ultra-Small Portfolio 337
Aggressive Growth Portfolio 75
Social Responsibility Portfolio 25
Item 27. Indemnification
See Indemnification Section of By-Laws which is incorporated here by
reference. Registrant will maintain with Rollins Executive Risk Services
Directors and Officers Errors and Omissions liability insurance covering
(among other things) amounts which Registrant may pay pursuant to the
foregoing indemnification provisions.
Item 28. Business and Other Connections of Investment Adviser
As stated in the Prospectus and Statement of Additional Information,
the Investment Adviser was organized in 1993 and will act as an Investment
Adviser to other individuals, businesses, and registered investment
companies.
Item 29. Principal Underwriters
Bridgeway Fund is the distributor of its own securities.
Item 30. Location of Accounts and Records
Accounts and Records of the Registrant are maintained at the offices
of the Registrant, its Adviser and Distributor at 5650 Kirby Drive, Suite
141, Houston, Texas 77005-2443. Custody records are maintained at the
offices of the Registrant's Custodian Bank, River Oaks Trust Company, c/o
Compass Bank at 2001 Kirby Drive, Houston, Texas 77005-2443.
Item 31. Management Services
Other than as set forth under MANAGEMENT in the Statement of
Additional Information, Registrant is not a party to any management related
service contract.
Item 32. Undertakings
Incorporated by reference.
July 26, 1996
Dear Fellow Ultra-Small Company Shareholder,
Performance for our second fiscal year ending June 30, 1996 was
outstanding! The Ultra-Small Company Portfolio was up 52.4%,
roughly twice that of the broader market indexes. Our Portfolio
ranked 20th of 357 small-company funds (6th highest percentile)
and 30th of 1890 domestic equity funds (2nd highest percentile)
for this period according to Morningstar.
Our portfolio outperformed the Russell 2000 Index of small
companies in each quarter of the fiscal year just concluded, in
spite of the fact that large companies outperformed small
companies for the fiscal year as a whole. I would normally
expect the ultra-small asset class (companies the size of the
smallest 10% of New York Stock Exchange companies) to shine
brightly only during periods when small company indexes beat
large company indexes, the long-term trend over the last seven
decades. I attribute our excellent portfolio record over the
last twelve months to the success of our statistical models used
to select stocks with excellent appreciation potential but
"dampened" downside risk. By "damped downside risk," I mean
stocks which will go down less than the average ultra-small
company in a market downturn; they will still probably go down
more than large stocks, however. Time will tell. There hasn't
been a true market correction since 1990.
You may recall in my annual report one year ago that we had
jettisoned one "value" model which had done poorly for us in the
ultra-small sector in Fiscal Year 1995. This action has greatly
decreased the number of stocks with a significant decline, while
also freeing up more money for our other models. I am very
pleased with the results of this action over the last twelve
months. I am equally enthusiastic about our prospects over the
next twelve months, as I recalibrate and fine tune our models.
Of course, past performance is no guarantee of future returns,
and the stock market as a whole may or may not cooperate with
our future efforts. In any case, I am extremely pleased with
the results of this last fiscal year. The graph below presents
the growth of $10,000 invested in our portfolio on our inception
date compared with two comparison benchmarks. The table on the
following page presents our performance in the standardized
format required by the SEC.
<TABLE>
<CAPTION>
Edgar Representation of Graph: Growth of $10,000 Invested in Various Funds and Indexes
The graph shows the growth of $10,000 invested in Bridgeway
Ultra-Small Company Portfolio, the S&P500 large company
index, the Russell 2000 small stock index, and Lipper's
Capital Appreciation Fund index over the two fiscal years
that the Portfolio has been operational. The graph shows
that these four theoretical investments were gradually
increasing over this period. The Ultra-Small Company
Portfolio lagged the other two performance benchmarks in the
fiscal year ending June 30, 1995, but came "roaring back" to
lead strongly by the end of the fiscal year ending June 30, 1996.
Aug-94 Sep-94 Dec-94 Mar-95 Jun-95 Sep-95 Dec-95 Mar-96 Jun-96
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ultra-Small Company Portfolio $10,000 $10,214 $9,725 $10,249 $11,047 $12,673 $13,598 $14,718 $16,838
Russell 2000 Index $10,000 $10,514 $10,318 $10,793 $11,805 $12,960 $13,242 $13,921 $14,614
Lipper Small Co. Growth Funds $10,000 $10,729 $10,716 $11,317 $12,365 $13,792 $14,084 $14,878 $16,083
</TABLE>
<PAGE>
Performance Summary
Your portfolio was up 14.2% during the June quarter, trouncing all
our comparison benchmarks. For the fiscal year ending June 30, we
were up 52.4%, also trouncing our performance benchmarks. I hope
you'll take a minute to feast your eyes on the following table,
which presents SEC standardized performance for the June quarter,
one year, and life-to-date*:
<TABLE>
<CAPTION>
June Qtr. 1 Year Life-to-Date
3/29/96 6/30/95 8/5/94 to
to 6/28/96 to 6/28/96 6/28/96 **
<S> <C> <C> <C>
Ultra-Small Company Portfolio 14.2% 52.4% 31.5%
Lipper Small Co. Growth Funds* 7.9% 19.6% 28.4%
Russell 2000 (small growth stocks)* 5.0% 23.8% 22.1%
</TABLE>
* The Lipper Small Co. Growth Funds is an index of smaller company
growth funds compiled by Lipper Analytical Services, Inc. The
Russell 2000 is an unmanaged index of small stocks, with dividends
reinvested. Past performance does not guarantee future returns.
** Life-to-date returns are annualized; the June quarter period is
not annualized.
Detailed Explanation of Performance
Thirty-six of our companies increased by at least 50% during
the fiscal year. The highest performer was Medicis
Pharmaceutical, Inc.--up a whopping 451%! This company was
undervalued when we bought it, then had a 14:1 reverse split
and got listed on NASDAQ's major market. It started to
really get noticed by Wall Street as sales and earnings
began to take off. Then there was the announcement of a new
product which was very effective for acne. It's great when
everything goes right with a stock. Our second highest
performer was Alta Gold, a gold exploration and production
company (up a mere 235%). This company was an undervalued
mining company when we bought it. Of course, it didn't hurt
that they discovered significant additional gold shortly
thereafter. On the other side of the ledger, we had only
one company which declined 50% or more. Inco Homes was one
of the last stocks identified by the value model we stopped
using in June, 1995. It declined 50% when an potential
turnaround failed to materialize. The company was then out
of compliance with loan covenants. Ouch! Fortunately, our
portfolio is highly diversified and a single position
usually makes up only 1 to 2% of portfolio net assets at the
time we buy. Ultra-small companies are more volatile on an
individual basis, and it is only when you average a large
number of the positive and (hopefully not so many) negative
returns together that you end up with the average return of
the portfolio--which, however, this year was very strong.
This wonderful list shows our best gainers for the year:
<TABLE>
<CAPTION>
Company Total Return Industry
<S> <C> <C>
Medicis Pharmaceutical, Inc. (Class A) 451% Drugs - Generic & OTC
Alta Gold Company 235% Mining
Diagnostic Health Services, Inc. 227% Health Care
Microlog Corporation 166% Telecommunications
Fresh America Corporation 165% Food
American Physicians Services Group 165% Finance
Microtek Medical, Inc. 152% Medical Equipment / Supplies
Nobility Homes, Inc. 152% Building
Ikos System, Inc. 144% Data Processing
Zytec, Inc. 132% Electronic Components, Controls
Computer Telephone 130% Electronic Equipment
Oshman's, Inc. 109% Leisure / Amusements
Cyanotech Corporation 108% Medical Equipment / Supplies
Nutrition for Life, Inc. 91% Retail Stores
SMT Health Services 88% Health Care
I-Flow Corporation 85% Medical Equipment / Supplies
Chart Industries, Inc. 85% Machinery
Xeta Corporation 83% Telecommunications
Applied Microsystems, Inc. 81% Data Processing
Unimark Group, Inc. 75% Food
Atlantic Coast Airlines 71% Air Transportation
Medical Resources, Inc. 69% Medical Equipment / Supplies
Astronics Corporation 69% Containers
PPT Vision, Inc. 68% Machine Tools
Perfumania Inc. 65% Retail Stores
Health Risk Management, Inc. 64% Health Care
Tuesday Morning Corporation 64% Retail Stores
Venturian Corporation 64% Machinery
Laser Industries Ltd. 63% Specialty Instruments
Alliance Imaging, Inc. 62% Health Care
Spectran Corporation 62% Telecommunications
Sigmatron International, Inc. 60% Electronics
Mesa Laboratories, Inc. 59% Medical Equipment / Supplies
Comstock Resources, Inc. 57% Oil & Gas
Facelifters Home System, Inc. 56% Home Furnishings
Biosource International, Inc. 51% Medical Equipment / Supplies
</TABLE>
Top Holdings
The top ten holdings as of June 30, 1996 are presented below. You
will notice excellent diversification and no concentrated
positions. This is part of our strategy to diversify strongly by
industry and region. I pick one company at a time to add to the
portfolio, and make no judgments about the direction of the market
or the economy. Our one area of concentration, of course, is
size--"smallest of the small." This is not a "tech fund,"
although we certainly have good exposure in the computer and
electronics industries. It is also not an "IPO" (initial public
offering) fund, although we typically have a few companies that
went public within the last year. A full list of all holdings
is attached to this letter in the financial statements.
<TABLE>
<CAPTION>
Company % of Net Assets Industry
<S> <C> <C>
STB Systems, Inc. 3.6% Data Processing
Gantos, Inc. 2.6% Retail Stores
One Price Clothing Stores 2.2% Retail Stores
Funco, Inc. 2.1% Leisure - Amusement
Comstock Resources, Inc. 2.1% Oil & Gas
Embrex, Inc. 2.0% Drugs - Generic & OTC
SCP Pool Corporation 2.0% Leisure - Amusement
Symix Systems, Inc. 2.0% Data Processing
Citation Computer Systems, Inc. 1.9% Data Processing
Spectran Corporation 1.8% Telecommunications
----
Total 22.3%
</TABLE>
Risk Disclosure
When we registered to sell shares in Massachusetts earlier this
year, the Massachusetts Securities Division asked us to expound
upon the risks of small stock investing. While some of the
detailed explanation may be more conjecture than knowledge, higher
short term risk associated with small companies is a statistical
fact. Depending on how you measure it, ultra-small companies as
an asset class have been anywhere from 27% to 120% riskier in the
short term than large stocks, based on 70 years of data. In a
recent Mutual Fund Magazine listing of aggressive growth funds,
Bridgeway Ultra-Small Company was ranked less risky than just over
half of these funds (the 53rd percentile). Even though we try to
mitigate some of the short-term downside risk in our stock
picking, we DO believe the Ultra-Small Company Portfolio is still
riskier (that is more volatile in the short-term) than large
company indexes. This is intuitive: in order to achieve higher
long-term returns, you must accept higher short-term risk. What
is not intuitive is that you may also be doing this with less
long-term risk. This latter argument was explained in our
December, 1995 semi-annual report. This said, the following
includes our current language on volatility and the language we
drafted for Massachusetts (to be included in our next prospectus)
on why this is so:
"Very small companies" are those with market capitalization
the size of the smallest 10% of those listed on the New York
Stock Exchange. However, a majority of stocks in this
Portfolio are listed on NASDAQ rather than the New York
Stock Exchange. The market price of very small company
shares may exhibit greater volatility than large company
shares.
The Adviser believes no other mutual fund, as of the date of
this prospectus, is committed to investing long-term in
companies this small. Indeed, according to Morningstar's
June 30, 1996 database, no other mutual fund has a median
market capitalization as small as Bridgeway Ultra-Small
Company Portfolio. While companies this small have
historically had a higher average annual return than large
stocks over the long term (25 years and more), they have
also had commensurately higher volatility. Therefore,
shareholders of this portfolio are exposed to above-average
risk.
On the downside, companies this small may have limited
resources for expansion or to survive in a newly competitive
environment, may lack depth of management, may have limited
product lines and a lack of market "muscle," and may be more
sensitive to economic downturns.
On the upside, such companies may be more maneuverable in
the marketplace, less bureaucratic, may respond quicker to
changing market forces, may see a successful product add
more to "the bottom line" in percentage terms, and if they
survive an economic downturn, may "bounce back" faster.
While the Adviser attempts to limit some of the downside
volatility inherent in this asset class through its
quantitative models, shareholders of this portfolio should
expect significantly higher short-term price volatility than
that experienced by shareholders of most other funds. The
Adviser believes this Portfolio is more appropriate as a
long term investment (at least 5 years, but ideally 10 years
or more) for shareholders who can accommodate short-term
price volatility, or as a diversifier to a portfolio
consisting primarily of larger stocks. It is not an
appropriate investment for short-term investors or those
trying to time the market.
Shareholder Vote
A number of shareholders have indicated a desire to be able to
continue to invest in the Portfolio after it closes to new
investors. As a result, a few months ago we began studying the
possibility of closing the Portfolio to new investors at $27.5
million (half the level stated in the prospectus and unprecedented
in the mutual fund industry) and allowing investors to invest a
like dollar amount through at least the end of 1997. As president
of the investment advisory firm, I would prefer not to close the
fund to new investors until we reach $55 million, since our fees
are a function of assets under management. However, you may
recall I have a majority of my own IRA funds in this Portfolio and
as a shareholder, I would like to keep the Portfolio small as long
as possible, which I believe helps our performance. So. . . you
should receive notice of a special meeting of shareholders, proxy
statement, and return envelope in the next week or two. Please be
on the lookout for this important proxy material in the mail.
Conclusion
I trust you are pleased with Fiscal Year 1996. Remarkably, all
three of Bridgeway's portfolios finished this fiscal year in the
top 10% of their peer groups according to Morningstar. Of course,
not every year will be this good. (Does anyone remember what a
real correction looks like?) I plan to be fully invested when the
next correction does occur. From my previous letters, you know I
think that timing the economy and market is a poor investment
strategy. The overall track record of professionals trying it is
abysmal. The stock market is a long term investment, and I advise
against putting money in any stock market instrument that you
anticipate needing to spend in the next three years. For those of
you who have been with Bridgeway at least a year, we have built up
a tidy "surplus" against the next downturn.
As always, I appreciate your feedback and suggestions. We have
received a number of helpful comments and are always looking for
ways to improve our service. The format of our quarterly account
statement and the shareholder vote described above are just two
examples. Please keep your ideas coming.
Sincerely,
/s/ John Montgomery
John Montgomery
<PAGE>
July 26, 1996
Dear Fellow Aggressive Growth Shareholder,
Performance for our second fiscal year ending June 30, 1996 was
outstanding. The Aggressive Growth Portfolio was up 43.3%. This
record ranked our portfolio ninth of 89 aggressive growth funds
(11th percentile) and 77th of 1890 domestic equity funds (5th
percentile) according to Morningstar.
For seven of the eight quarters since Portfolio inception, we have
beaten our S&P 500 benchmark. We accomplished this each quarter
in the last fiscal year, and in the last two quarters we "ran away
from the pack." We nearly doubled the return of the Russell 2000
Index and Lipper's Aggressive Growth Index over the last year. We
have seen our Portfolio appear among the top one-year performing
aggressive growth funds in the charts of major newspapers, even
though the fund remains too small to appear in the mutual fund
quotations of the same publications. I'll settle for performance
over fame any day. I trust it was as thrilling to review your own
June quarter statement as it was for me.
Performance Summary
Your fund was up 11.2% during the June quarter, trouncing all our
benchmarks for comparison. For the fiscal year ending June 30, we
were up 43.3%.
I hope you'll take a minute to feast your eyes on the following
graph, which compares our performance to that of several
benchmarks on a cumulative quarterly basis, and also to the table
on the following page which presents SEC standardized performance
for the June quarter, one year, and life-to-date*:
<TABLE>
<CAPTION>
Edgar Representation of Graph: Growth of $10,000 Invested in Various Funds and Indexes
The graph shows the growth of $10,000 invested in Bridgeway
Aggressive Growth Portfolio, the S&P500 large company index,
the Russell 2000 small stock index and Lipper's Capital
Appreciation Fund index over the two fiscal years that the
Portfolio has been operational. The graph shows that these
four theoretical investments were gradually increasing over
this period and were fairly close in magnitude, until the
last two quarters ending June, 1996, when the Aggressive
Growth Portfolio "broke away from the pack."
Aug-94 Sep-94 Dec-94 Mar-95 Jun-95 Sep-95 Dec-95 Mar-96 Jun-96
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aggressive Growth Portfolio $10,000 $10,520 $10,877 $10,891 $11,953 $12,963 $13,824 $15,397 $17,123
S&P 500 $10,000 $10,171 $10,170 $11,155 $12,220 $13,192 $13,986 $14,737 $15,399
Russell 2000 $10,000 $10,514 $10,318 $10,793 $11,805 $12,960 $13,242 $13,921 $14,614
Lipper Capital Apprec. Funds $10,000 $10,441 $10,294 $11,011 $12,046 $13,123 $13,461 $14,202 $14,839
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
June Qtr. 1 Year Life-to-Date
3/29/96 6/30/95 8/5/94 to
to 6/28/96 to 6/28/96 6/28/96**
<S> <C> <C> <C>
Aggressive Growth Portfolio 11.2% 43.3% 32.7%
S&P 500 Index (large stocks) * 4.5% 26.0% 25.5%
Russell 2000 (small growth stocks)* 5.0% 23.8% 22.1%
Lipper Capital Appreciation Funds* 5.0% 23.2% 23.1%
</TABLE>
* The Russell 2000 and S&P 500 are unmanaged indexes of large and
small stocks, respectively, with dividends reinvested. The Lipper
Capital Appreciation Funds reflect the aggregate record of more
aggressive domestic growth mutual funds as reported by Lipper
Analytical Services, Inc. Past performance does not guarantee
future returns.
** Life-to-date returns are annualized; quarterly returns are not
annualized.
Detailed Explanation of Performance
Twelve of our companies increased by at least 50% during the fiscal
year. The market favored our growth stocks strongly in the last
two quarters and this helped us outperform the S&P 500 by more than
5% in each of the last two quarters. The highest performer was
Medicis Pharmaceutical, Inc. up 227%. When things go right they
can be wonderful. The company was undervalued to begin with. A
14:1 reverse split and listing on NASDAQ's major market brought it
new investor interest just as earnings were accelerating. What a
market ride!
On the other side of the ledger, we had three stocks declining more
than 50%: AG Associates (-68.5%), Cytel (-55%), and Prins
Recycling (-53%). AG Associates is (unfortunately) a good
example of what can go wrong. We bought this manufacturer of
semiconductor-related equipment near the peak of the semiconductor
boom. The industry experienced a slump within a few months of
purchase. To make matters (much) worse, the company lost its
largest, and major, customer shortly thereafter. Ouch!
Fortunately, these more volatile issues are limited in the size of
positions we take.
Conclusion
I trust you are pleased with Fiscal Year 1996. Remarkably, all
three of Bridgeway's portfolios finished this fiscal year in the
top 10% of their peer groups according to Morningstar. Of course,
not every year will be this good. (Does anyone remember what a
real correction looks like?) I plan to be fully invested when the
next correction does occur. From my previous letters, you know I
think that timing the economy and market is a poor investment
strategy. The overall track record of professionals trying it is
abysmal. The stock market is a long term investment, and I advise
against putting money in any stock market instrument that you
anticipate needing to spend in the next three years. For those of
you who have been with Bridgeway at least a year, we have built up
a tidy "surplus" against the next downturn.
As always, I appreciate your feedback and suggestions. We have
received a number of helpful comments and are always looking for
ways to improve our service. Please keep your ideas coming.
Sincerely,
/s/ John Montgomery
John Montgomery
<PAGE>
July 26, 1996
Dear Fellow Socially Responsible Shareholder,
The June quarter was much better. It was good enough to put us ahead
of the S&P 500 for the year and way ahead of Lipper's growth and
income fund average. According to Morningstar, our Portfolio ranked
43rd of 473 growth and income funds. Who says a socially responsible
fund has to underperform financially???
Financial Performance
Bridgeway Social Responsibility Portfolio rose 10.8% in the June
quarter, versus 3.4% for Lipper's growth and income fund average and
4.5% for the S&P 500 Index.
For the Fiscal Year ending June 30, the Portfolio rose 26.6% versus
21.5% for Lipper's growth and income fund average and 26.0% for the
S&P 500. I am very pleased with our fiscal year performance, but
won't be satisfied until we are back above the S&P 500 on a life-to-
date basis. Compared to our peer group of growth and income funds we
are doing well across the board.
The graph below compares our performance to that of our two benchmarks
on a cumulative quarterly basis, and the table on the following page
presents SEC standardized performance for the June quarter, fiscal
year, and life-to-date:
<TABLE>
<CAPTION>
Edgar Representation of Graph: Growth of $10,000 Invested in Bridgeway Resp. Portfolio
The graph shows the growth of $10,000 invested in Bridgeway
Social Responsibility Portfolio, the S&P500 large company
index, and Lipper's Growth and Income Fund index over the
two fiscal years that the Portfolio has been operational.
The graph shows that these four theoretical investments were
gradually increasing over this period. The S&P 500 index
has led in performance over most of the period. The
Social Responsibility Portfolio had a particularly strong
last quarter, narrowing the gap with the S&P 500 index and
continuing it's strong outperformance of Lipper's Growth and
Income funds in the last quarter and fiscal year.
Aug-94 Sep-94 Dec-94 Mar-95 Jun-95 Sep-95 Dec-95 Mar-96 Jun-96
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Social Responsibility Portfolio $10,000 $10,594 $10,151 $11,236 $11,892 $12,865 $13,224 $13,593 $15,060
S&P 500 $10,000 $10,171 $10,170 $11,155 $12,220 $13,192 $13,986 $14,737 $15,399
Lipper Growth & Income Funds $10,000 $10,100 $9,901 $11,192 $11,554 $12,363 $12,918 $14,080 $14,038
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
June Qtr. 1 Year Life-to-Date
3/29/96 6/30/95 8/5/94 to
to 6/28/96 to 6/28/96 6/28/96 **
<S> <C> <C> <C>
Social Responsibility Portfolio 10.8% 26.6% 24.0%
S&P 500 Index (large stocks) * 4.5% 26.0% 25.5%
Lipper Growth & Income Funds* 3.4% 21.5% 19.5%
</TABLE>
* The S&P 500 is an unmanaged index of large stocks with
dividends reinvested. The Lipper Growth & Income Funds reflect
the aggregate record of growth and income mutual funds as
reported by Lipper Analytical Services, Inc. Past performance
does not guarantee future returns.
** Life-to-date returns are annualized; periods shorter than one
year are not annualized.
Detailed Explanation of Financial Performance
Positions in three of our companies have more than doubled since
we purchased them: Nike (which nearly tripled), Safeway Stores
(up 174%), and Medtronics (up 104%). On the other side of the
ledger, we have had no stocks which declined as much as 50%, but
we had a couple of technology companies which were caught in the
technology selloff in the middle of the fiscal year, notably
Digital Equipment Corporation. Our biggest declining stock has
been Healthy Planet products, down 39% since our purchase. This
maker of greeting cards suffered a slowdown of growth in the
last two quarters after commanding a hefty price premium due to
several prior years of strong growth in what would appear to be
a great niche market. The portfolio encountered no unusual
overall trends during the fiscal year, except perhaps a very
cooperative market. According to June 30 statistics released by
Morningstar on our fund, the Portfolio's price to earnings ratio
of 22.4 almost matches that of the S&P 500's 22.8. The growth
rate of these companies is a bit higher than the broader market,
however.
As described in our last letter, we made one change in our
portfolio management which yielded much better performance in
the June quarter. Previously, we have ranked 680 companies
according to shareholder weightings of ten social criteria. We
then pick from among the top fifth of these according to our
financial models. While this will remain our core strategy, we
are also now "starting at the other end and working backwards."
For a rather small portion of our portfolio holdings we have now
begun to take the top companies identified by our financial
models and perform research as to their corporate
responsibility. Only companies which rate highly both
financially and socially are added to the Portfolio. This
effectively increases the universe of stocks we are looking at.
This new process has yielded some very attractive firms from a
social standpoint, including Sofamor-Danik Group and Zytec
Corporation.
Social Responsibility Highlight
"You won't believe this company. It's got it all." That's what
Joanna said when she completed the research on Sofamor-Danik
Group. It scored very highly on 9 of our 10 social criteria.
In fact, the breadth of their programs was perhaps most
impressive. This company has an important chemical recycling
program, a strong employee stock ownership plan, a very flat
organization with a high level of worker participation in
decision-making, excellent benefit and leave policies, flexible
hours, and help with day-care. These policies have helped the
company grow at a 15% annual rate. The company also contributes
1/4 to 1/2% of sales to charitable organizations. . . . but is
it profitable? Yes, very, but the rate of earnings growth has
slowed recently. The only area the company scored low in was
advancement of minorities in the workplace. However, the company
is working on this and has instituted diversity training.
Conclusion
I trust you are pleased with Fiscal Year 1996. Remarkably, all
three of Bridgeway's portfolios finished this fiscal year in the
top 10% of their peer groups according to Morningstar. Of
course, not every year will be this good. (Does anyone remember
what a real correction looks like?) I plan to be fully invested
when the next correction does occur. From my previous letters,
you know I think that timing the economy and market is a poor
investment strategy. The overall track record of professionals
trying it is abysmal. The stock market is a long term
investment, and I advise against putting money in any stock
market instrument that you anticipate needing to spend in the
next three years.
As always, I appreciate your feedback and suggestions. We have
received a number of helpful ideas and are always looking for
ways to improve our service. Please keep your ideas coming.
Sincerely,
/s/ John Montgomery
John Montgomery
<PAGE>
Report of Independent Accountants
To the Board of Directors of Bridgeway Fund, Inc.
and Shareholders of the Ultra-Small Company,
Aggressive Growth and Social Responsibility Portfolios:
We have audited the accompanying statement of assets and
liabilities, including the schedule of portfolio investments, of
Bridgeway Fund, Inc. (comprising, respectively, the Ultra-Small
Company, Aggressive Growth, and Social Responsibility Portfolios) as
of June 30, 1996, the related statement of operations for the year
then ended, and the statement of changes in net assets and the
financial highlights for the year ended June 30 1996 and for the
period from August 5, 1994 (commencement of operations) to June 30,
1995. 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 audit.
We conducted our audit in accordance with generally accepted
auditing standards. 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 examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of June 30, 1996, by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides 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 each of the respective portfolios constituting
Bridgeway Fund, Inc. as of June 30, 1996, the results of their
operations for the year then ended, and the changes in their net
assets and the financial highlights for the year ended June 30, 1996
and for the period from August 5, 1994 (commencement of operations) to
June 30, 1995, in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND L.L.P.
Houston, Texas
September 12, 1996
<PAGE>
BRIDGEWAY FUND, INC.
ULTRA-SMALL COMPANY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1996
<TABLE>
<CAPTION>
Industry Company Shares Value
<S> <C> <C>
Common Stock- 86.8%
Air Transport- 0.9%
Atlantic Coast Airlines * 3,100 $40,490
Aircraft Manf./Components- 0.3%
Petrol Helicopters, Inc. 1,000 16,000
Auto Parts- 0.7%
Deflecta-Shield Corp. * 4,900 31,238
Automobiles- 0.8%
Collins Industries, Inc. * 7,500 37,500
Banking- 5.3%
Cascade Bancorp * 1,000 20,250
Dime Financial Corporation 4,900 74,725
Franklin Bank National Assoc. 115 1,208
Grove Bank 300 9,075
Home Port Bancorp, Inc. 3,000 39,000
Metropolitan Bancorp * 6,200 83,700
Peoples Bank Of Indianapolis 500 14,875
---------
242,833
Beverages- 0.8%
Cable Car Beverage Corp. * 19,800 35,888
Broadcasting- 0.8%
All American Communications, Inc. 3,500 35,000
Building- 2%
Engle Homes, Inc * 2,500 20,625
Zaring Homes, Inc. * 5,000 68,750
---------
89,375
Coatings, Paint,Varnishes- 0.5%
Southwall Technologies, Inc. * 3,200 24,000
Data Processing- 11.9%
Bell Microproducts, Inc. * 7,300 55,662
Cognitronics Corporation * 3,000 15,000
Citation Computer Systems, Inc. * 4,800 88,800
Equitrac Corporation * 1,000 9,375
General Automation, Inc. * 22,000 60,500
International MicroComputer Software Co. * 2,800 24,850
Qlogic Corporation * 2,100 21,000
STB Systems, Inc. * 9,500 162,688
Symix Systems, Inc. * 5,900 92,925
Xata Corporation * 1,000 10,375
---------
541,175
</TABLE>
<PAGE>
BRIDGEWAY FUND, INC.
ULTRA-SMALL COMPANY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1996
<TABLE>
<CAPTION>
Industry Company Shares Value
<S> <C> <C>
Drugs-Generic and OTC- 2.4%
Embrex, Inc. * 13,500 89,438
Procyte Corporation * 5,800 20,662
---------
110,100
Education- 0.9%
TRO Learning, Inc. * 2,600 42,250
Electronics/Electric- 9.4%
Aseco Corporation * 2,690 26,563
Circuit Systems, Inc. * 2,200 13,750
Diagnostic/Retrieval Systems, Inc. * 4,500 49,500
Jaco Electronics, Inc. * 1,000 10,125
Nanometrics, Inc. * 1,000 6,000
Polk Audio, Inc. * 2,500 36,563
Reliability, Inc. * 8,000 51,000
Sigmatron Intlernational, Inc. * 2,300 25,300
Semtech Corporation * 4,900 44,100
Spectrum Control, Inc. * 3,000 14,625
Super Vision Int'l., Inc. * 5,500 48,813
Tylan General, Inc. * 2,100 27,825
Zytec Corporation * 4,200 76,125
---------
430,289
Finance- 0.7%
American Physicians Services Grp. * 1,900 18,288
TFC Enterprises, Inc. * 5,800 13,775
---------
32,063
Food- 1%
Armanino Foods Distinction * 11,000 16,500
Fresh America Corporation * 2,000 27,250
---------
43,750
Food Serving- 0.1%
Family Steak House, Inc. * 6,200 4,263
Health Care Facilities- 1.7%
Caretenders Health Corp. * 2,800 21,000
Alliance Imaging, Inc. * 3,000 15,000
SMT Health Services, Inc. * 4,900 41,650
---------
77,650
Hotels/Motels/Inns- 0.1%
Buckhead America Corp. * 1,000 6,380
</TABLE>
<PAGE>
BRIDGEWAY FUND, INC.
ULTRA-SMALL COMPANY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1996
<TABLE>
<CAPTION>
Industry Company Shares Value
<S> <C> <C>
Insurance- 1.6%
Home State Holdings, Inc. * 1,000 8,375
MCM Corporation 4,000 22,000
Omni Insurance Group * 1,000 8,500
Unico American Corp. 4,500 32,625
---------
71,500
Jewelry, Silverware, Watches- 0.3%
Barry's Jewelers, Inc. * 4,000 14,000
Leisure-Amusement- 5.5%
E R O, Inc. * 2,800 17,500
Funco, Inc. * 11,000 94,875
Play By Play Toys & Novelties * 1,500 21,375
SCP Pool Corporation * 5,000 90,000
PTI Holding, Inc. * 3,400 26,775
---------
250,525
Machinery- 2.6%
Chart Industries, Inc. 4,200 59,325
Farr Company * 1,000 13,250
PPT Vision, Inc. * 1,500 18,563
Venturian Corporation * 2,000 25,500
---------
116,638
Manufacturing/Distr.- 0.3%
Unit Instruments, Inc. * 1,000 13,875
Medical Equipment/Supplies- 3.7%
AFP Imagining Corporation * 3,000 4,312
Biosource International, Inc. * 3,300 29,803
Fischer Imaging Corporation * 2,000 24,000
I-Flow Corporation * 6,000 30,000
Medical Resources, Inc. * 6,300 55,913
Microtek Medical, Inc. * 1,800 27,000
---------
171,028
Mining- 0.7%
Alta Gold * 9,000 32,063
</TABLE>
<PAGE>
BRIDGEWAY FUND, INC.
ULTRA-SMALL COMPANY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1996
<TABLE>
<CAPTION>
Industry Company Shares Value
<S> <C> <C>
Oil & Gas- 11%
Astrotech International Corp. * 2,000 11,250
Bellwether Exploration Co. * 7,700 46,200
Comstock Resources, Inc. * 9,500 96,781
American Oilfield Divers * 7,300 65,700
Maverick Tube Corp. * 6,600 77,550
McFarland Energy, Inc. * 5,700 51,300
Maynard Oil Company * 1,500 12,375
Callon Petroleum Company * 3,100 38,750
Petroleum Development Corp. * 25,500 70,125
UTI Energy Corporation * 1,800 20,925
Tatham Offshore, Inc. * 12,000 10,500
---------
501,456
Pollution Control- 0.6%
American Eco Corporation * 3,000 25,500
Retail Stores- 7.4%
Gantos, Inc. * 20,800 118,300
Calloways Nursery * 7,000 6,125
Jim Hjelms Private Collections * 4,500 11,812
Nutrition For Life International * 2,580 38,700
Tuesday Morning Corporation * 4,300 57,513
Village Super Market, Inc. * 400 3,400
One Price Clothing Stores * 18,400 101,200
---------
337,050
Securities- 3.7%
Advest Group, Inc. * 3,100 31,775
JB Oxford Holdings, Inc. * 14,200 40,825
M. H. Myerson & Company * 9,600 36,600
Southwest Securities Group 5,000 58,125
---------
167,325
Services- 2.5%
Advanced Marketing Services, Inc. * 5,600 72,100
RCM Technologies, Inc. * 4,500 40,500
---------
112,600
Specialty Instruments- 0.6%
Laser Industries Ltd. * 1,700 26,350
Steel / Iron- 1.4%
Northwest Pipe Company * 3,800 64,600
</TABLE>
<PAGE>
BRIDGEWAY FUND, INC.
ULTRA-SMALL COMPANY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1996
<TABLE>
<CAPTION>
Industry Company Shares Value
<S> <C> <C>
Telecommunications- 3.7%
EMCEE Broadcast Products * 7,500 58,125
Microlog Corporation * 1,000 9,500
Spectran Corporation * 4,200 81,900
World Access, Inc. * 2,000 19,000
---------
168,525
Textiles- 0.9%
Farrah, Inc. * 5,900 43,515
---------
Total Common Stocks (Identified Cost $3,637,359) 3,956,794
Short-term Investments- 2.7%
Money Market Funds- 2.7%
SEI Daily Income Trust Prime Obligations 40,623 40,623
Starburst Money Market Fund 40,623 40,623
Lehman Bros. Prime Money Market Class A 41,853 41,853
---------
123,099
---------
Total Short-term Investments (Identified Cost $123,099) 123,099
---------
Total Investments (Identified Cost $3,760,458)- 89.5% ** 4,079,893
Other Assets and Liabilities-Net: 10.5% _______
477,698
---------
Total Net Assets-100% $4,557,591
=========
* Non-income producing security as no dividends were paid during the period
from July 1, 1995 to June 30, 1996.
** The aggregate identified cost on a tax basis is $3,760,458. Gross unrealized
appreciation and depreciation were $498,416 and $178,981, respectively,
or net unrealized appreciation of $319,435.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1996
<TABLE>
<CAPTION>
Industry Company Shares Value
<S> <C> <C>
Common Stocks- 89.7%
Airlines- 10.3%
AMR Corporation * # 1,100 $100,100
Atlantic Coast Airlines, Inc. * 2,300 30,044
Continental Airlines (Class B) * 400 24,700
---------
154,844
Banking- 0.6%
Grove Bank 300 9,075
Data Processing/Hardware- 14.9%
IKOS System, Inc. * 500 10,563
Jabil Circuit, Inc. * 2,000 24,500
Citation Computer Systems, Inc. * 1,000 18,500
Equitrac Corporation * 1,500 14,063
General Automation, Inc. * 17,000 46,750
Sun Microsystems, Inc. * 1,480 87,136
Bell Microproducts, Inc. * 1,400 10,675
Zoom Telephonics, Inc. * 850 12,325
---------
224,512
Software- 1.1%
Symix Systems, Inc. * 1,000 15,750
Electronics/Electric- 11%
C-Cube Microsystems, Inc. * 400 13,200
Sigmatron International, Inc. * 1,000 11,000
Aseco Corporation * 700 6,913
Nanometrics, Inc. * 2,000 12,000
Veeco Instruments, Inc. * 1,100 15,538
Raychem Corporation 750 53,907
Advanced Semiconducor Materials Int'l * 1,900 20,662
Reliability, Inc. * 1,400 8,925
Siliconix, Inc. * 1,100 23,650
---------
165,795
Graphic Arts- 0.9%
Gibson Greeting, Inc. * 1,000 13,750
Household Products- 1.2%
Iona Appliances, Inc. * 2,800 18,564
Sports / Outdoor equip.- 1.3%
SCP Pool Corporation * 1,100 19,800
</TABLE>
<PAGE>
BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO, Continued
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1996
<TABLE>
<CAPTION>
Industry Company Shares Value
<S> <C> <C>
Machinery- 8.1%
JLG Industries 940 69,795
Chart Industries 1,000 14,125
Gleason Corporation 950 37,050
---------
120,970
Medical Equipment/Supplies- 2.3%
Bioradiations Labs, Inc. (Class A) * 938 33,650
Mutual Funds- 0.8%
New Germany Fund * 550 6,944
Spain Fund 400 4,750
---------
11,694
Oil & Gas- 9.8%
Comstock Resources, Inc. * 4,900 49,919
Louisiana Land & Exploration Co. 1,300 74,913
McFarland Energy, Inc. * 2,400 21,600
---------
146,432
Retail Stores- 18.3%
Tuesday Morning Corporation * 1,200 16,050
Carson Pirie Scott & Company * 1,000 26,750
TJX Companies, Inc. * # 3,800 128,250
Damark International, Inc. * 1,700 23,800
CompUSA, Inc. * # 1,280 43,680
One Price Clothing Store, Inc. * 4,400 24,200
Nutrition for Life Int'l, Inc. * 800 12,000
---------
274,730
Securities Industry- 2%
Advest Group, Inc. * 1,500 15,375
JB Oxford Holdings, Inc. * 5,300 15,238
---------
30,613
Steel/Iron- 1.1%
Northwest Pipe Company * 1,000 17,000
Metals (Titanium)- 4.1%
Oregon Metallurgical Corporation * 2,100 61,950
Services- 1.9%
Team Rental Group, Inc. * 2,000 28,000
---------
Total Common Stocks (Identified Cost $1,216,057) 1,347,129
</TABLE>
<PAGE>
BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO, Continued
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1996
<TABLE>
<CAPTION>
Industry Company Shares Value
<S> <C> <C>
Options- 2.1%
Air Transport- 1%
AMR Corp. 1/97 Calls @70 200 4,675
AMR Corp. 1/97 Calls @75 400 10,246
---------
14,921
Retail Stores- 1.1%
TJX 10/96 Calls 600 8,250
CompUSA, Inc. 11/96 Calls @25 800 8,200
---------
16,450
---------
Total Options (Identified Cost $34,300) 31,371
Short-term Investments- 6.2%
Money Market Funds- 6.2%
SEI Daily Income Trust Prime Obligations 30,931 30,931
Starburst Money Market Fund 30,931 30,931
Lehman Bros. Prime Money Market Class A 31,868 31,868
---------
93,730
---------
Total Short-term Investments (Identified Cost $93,730) 93,730
---------
Total Investments (Identified Cost $1,344,087)- 98% ** 1,472,230
Other Assets and Liabilities-Net: 2% 30,255
---------
Total Net Assets-100% $1,502,485
=========
* Non-income producing security as no dividends were paid during the period
from July 1, 1995 to June 30, 1996.
** The aggregate identified cost on a tax basis is $1,344,087. Gross unrealized
appreciation and depreciation were $201,429 and $73,286, respectively,
or net unrealized appreciation of $128,143.
# The portfolio owns a call option on this security.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
BRIDGEWAY FUND, INC.
SOCIAL RESPONSIBILITY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1996
<TABLE>
<CAPTION>
Industry Company Shares Value
<S> <C> <C>
Common Stock- 74.4%
Air Transport- 7.6%
AMR Corporation * 300 $27,300
Banking- 2.5%
Bank of Boston 45 2,228
MBNA Corporation 240 6,840
---------
9,068
Beverages- 2.5%
Pepsico, Inc. 250 8,875
Data Processing- 5.6%
Compaq Computers * 190 9,334
Digital Equipment Corporation * 245 11,056
---------
20,390
Drugs-Generic and OTC- 10.5%
Merck & Company 195 12,602
Pfizer, Inc. 155 11,063
Schering Plough 229 14,371
---------
38,036
Education- 3.3%
TRO Learning, Inc. * 735 11,944
Electronics/Electric- 10%
Maytag Corporation 16 338
Sony Corporation 110 7,273
Spectrum Controls, Inc. * 2,500 12,188
Zytec Corporation * 900 16,313
---------
36,112
Food- 0.2%
Ben & Jerry's Homemade, Inc. * 50 850
Graphic Arts- 1%
Healthy Planet Products, Inc. * 525 3,577
Health Care Facilities- 3.6%
Alliance Imaging, Inc. * 1,200 6,000
Pacificare Health Systems * 107 7,062
---------
13,062
Leather & Shoes- 4.8%
Nike, Inc. (Class B) 170 17,468
</TABLE>
<PAGE>
BRIDGEWAY FUND, INC.
SOCIAL RESPONSIBILITY PORTFOLIO, Continued
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1996
<TABLE>
<CAPTION>
Industry Company Shares Value
<S> <C> <C>
Medical Equipment/Supplies- 10.5%
Johnson & Johnson 230 11,385
Medtronics, Inc. 278 15,568
Sofamor/Danek Group * 400 11,100
---------
38,053
Paper / Products- 0.4%
Champion International 30 1,253
Retail Stores- 3.8%
Safeway Stores * 412 13,596
Specialty Instruments- 3.2%
Hewlett-Packard Corp. 116 11,557
Telecommunications- 3.5%
Cincinnati Bell * 240 12,510
Utilities-Electric- 1.4%
Hawaiian Electric 70 2,485
New England Electric Systems 75 2,723
---------
5,208
---------
Total Common Stocks (Identified Cost $222,993) 268,859
Short-term Investments- 25.6%
Money Market Funds- 25.6%
SEI Daily Income Trust Prime Obligations 12,325 12,325
Starburst Money Market Fund 12,325 12,325
Strong Money Market, Inc. 55,000 55,000
Lehman Bros. Prime Money Market Class A 12,699 12,699
---------
92,349
---------
Total Short-term Investments (Identified Cost $92,349) 92,349
---------
Total Investments (Identified Cost $315,342)- 100% ** 361,208
Other Assets and Liabilities-Net: 0% (248)
---------
Total Net Assets-100% $360,960
=========
* Non-income producing security as no dividends were paid during the period
from July 1, 1995 to June 30, 1996.
** The aggregate identified cost on a tax basis is $315,342. Gross unrealized
appreciation and depreciation were $55,062 and $9,196, respectively,
or net unrealized appreciation of $45,866.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 1996
Ultra-Small Aggressive Social
Company Growth Responsibility
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Assets:
Investments at value * $4,079,893 $1,472,230 $361,208
Cash 484,472 37,882 7,189
Receivable for interest 173 209 95
Receivable for dividends 1,448 400 406
Receivable from adviser 0 1,529 308
Prepaid expenses 11 11 11
Deferred organization costs 13,847 13,847 13,847
--------- --------- --------
Total assets 4,579,844 1,526,108 383,064
--------- --------- --------
Liabilities:
Payable for management fee 165 1,532 9
Payable for organization costs 13,860 13,860 13,860
Accrued expenses 8,228 8,231 8,235
--------- --------- --------
Total liabilities 22,253 23,623 22,104
--------- --------- --------
Net Assets $4,557,591 $1,502,485 $360,960
========= ========= ========
Shares Outstanding 273,245 90,177 24,591
========= ========= ========
Net asset value, offering and redemption price
per share $16.68 $16.66 $14.68
========= ========= ========
Net Assets Represent:
Paid-in capital $3,940,940 $1,222,591 $306,952
Undistributed net realized gain 297,216 151,751 8,142
Net unrealized appreciation of investments 319,435 128,143 45,866
--------- --------- --------
Net assets $4,557,591 $1,502,485 $360,960
========= ========= ========
* Investments at cost $3,760,458 $1,344,087 $315,342
========= ========= ========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 1996
Ultra-Small Aggressive Social
Company Growth Responsibility
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment income:
Dividends $5,297 $3,030 $1,982
Interest 2,586 2,187 813
--------- --------- --------
Total income 7,883 5,217 2,795
Expenses:
Management fees 14,056 8,037 1,416
Accounting fees 10,090 10,090 10,090
Audit fees 7,293 7,293 7,293
Custody 4,380 4,397 4,397
Amortization of organization costs 4,581 4,581 4,581
Insurance 1,739 1,739 1,739
Legal 5,276 5,276 5,276
Registration fees 416 0 135
Director fees 800 800 800
Miscellaneous 29 29 29
--------- --------- --------
Total expenses 48,660 42,242 35,756
Less fees waived (17,425) (18,127) (11,506)
Less expenses reimbursed 0 (9,579) (21,098)
--------- --------- --------
Net expenses 31,235 14,536 3,152
--------- --------- --------
Net investment loss (23,352) (9,319) (357)
--------- --------- --------
Net realized and unrealized gain on investments:
Net realized gain on investments 371,952 166,362 10,228
Net change in unrealized appreciation 247,576 95,798 39,110
--------- --------- --------
Net realized and unrealized gain 619,528 262,160 49,338
Net increase in assets
resulting from operations: $596,176 $252,841 $48,981
======== ======== ========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
Ultra-Small Company Portfolio Aggressive Growth Portfolio Social Responsibility Portfolio
Year ended Year ended Year ended
June 30, 1996 see * below June 30, 1996 see * below June 30, 1996 see * below
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment
income (loss) ($23,352) ($2,117) ($9,319) ($465) ($357) $295
Net realized gain (loss)
on investments 371,952 (3,571) 166,362 (1,720) 10,228 (854)
Net change in unrealized
appreciation 247,576 70,908 95,798 32,675 39,110 7,469
----------- -------- ----------- --------- ----------- --------
Net increase resulting
from operations 596,176 65,220 252,841 30,490 48,981 6,910
Distributions to shareholders:
From net investment
income 0 (4) 0 0 (297) (19)
From realized gains
on investments (44,243) (220) (4,442) (48) 0 0
----------- -------- ----------- --------- ----------- --------
Total distributions to
shareholders (44,243) (224) (4,442) (48) (297) (19)
Fund share transactions:
Proceeds from sale of
shares 3,392,930 568,271 989,807 188,873 268,541 33,982
Reinvestment of dividends 43,592 224 3,894 48 297 19
Cost of shares redeemed (98,400) 0 (15,887) 0 (20,983) (518)
----------- -------- ----------- --------- ----------- --------
Net increase from Fund
share transactions 3,338,122 568,495 977,814 188,921 247,855 33,483
----------- -------- ----------- --------- ----------- --------
Net increase in
net assets 3,890,055 633,491 1,226,213 219,363 296,539 40,374
Net assets:
Beginning of period 667,536 34,045 276,272 56,909 64,421 24,047
----------- -------- ----------- --------- ----------- --------
End of period $4,557,591 $667,536 $1,502,485 $276,272 $360,960 $64,421
=========== ======== =========== ========= =========== ========
Number of Fund shares:
Sold 217,309 55,498 67,496 17,837 20,594 3,152
Issued on dividends
reinvested 3,338 22 294 5 23 2
Redeemed (6,219) 0 (1,209) 0 (1,577) (45)
----------- -------- ----------- --------- ----------- --------
Net increase 214,428 55,520 66,581 17,842 19,040 3,109
Outstanding at beginning
of period 58,817 3,297 23,596 5,754 5,551 2,442
----------- -------- ----------- --------- ----------- --------
Outstanding at end of period 273,245 58,817 90,177 23,596 24,591 5,551
=========== ======== =========== ========= =========== ========
* from August 5, 1994 (commencement of operations) to June 30, 1995
See accompanying notes to financial statements.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC.
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the period)
Ultra-Small Company Portfolio Aggressive Growth Portfolio Social Responsibility Portfolio
Year ended Year ended Year ended
June 30, 1996 see * below June 30, 1996 see * below June 30, 1996 see * below
<S> <C> <C> <C> <C> <C> <C>
Per share data
Net asset value, beginning
of period $11.35 $10.33 $11.71 $9.89 $11.61 $9.85
Income (loss) from investment operations:
Net investment
income (loss) (0.21) (0.04) (0.18) (0.02) (0.02) 0.07
Net realized and
unrealized gain 6.03 1.07 5.22 1.84 3.11 1.70
----------- -------- ----------- --------- ----------- --------
Total from investment
operations 5.82 1.03 5.04 1.82 3.09 1.77
Less distributions to shareholders:
Net investment income 0.00 0.00 0.00 0.00 (0.02) (0.01)
Net realized gains (0.49) (0.01) (0.09) 0.00 0.00 0.00
----------- -------- ----------- --------- ----------- --------
Total distributions (0.49) (0.01) (0.09) 0.00 (0.02) (0.01)
----------- -------- ----------- --------- ----------- --------
Net asset value, end of period $16.68 $11.35 $16.66 $11.71 $14.68 $11.61
=========== ======== =========== ========= =========== ========
Total return [1] 52.4% 10.5% 43.3% 19.5% 26.6% 18.9%
Ratios & Supplemental Data
Net assets, end of period $4,557,591 $667,536 $1,502,485 $276,272 $360,960 $64,421
Ratios to average net assets: [2]
Expenses net of waivers and
reimbursements 1.97% 1.68% 1.97% 1.86% 1.48% 1.46%
Expenses before waivers and
reimbursements 3.07% 8.34% 5.73% 16.15% 16.80% 72.83%
Net investment income (loss) (1.47%) (0.65%) (1.26%) (0.30%) (0.17%) 0.90%
Portfolio turnover rate [2] 155.9% 103.6% 167.7% 139.9% 83.8% 71.7%
=========== ======== =========== ========= =========== ========
[1] Not annualized for the period August 5, 1994 to June 30, 1995.
[2} Annualized for the period August 5, 1994 to June 30, 1995.
* from August 5, 1994 (commencement of operations) to June 30, 1995
</TABLE>
See accompanying notes to financial statements.
<PAGE>
BRIDGEWAY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization:
Bridgeway Fund, Inc. (the "Fund") was organized as a Maryland
corporation on October 19, 1993, and is registered under the Investment
Company Act of 1940, as amended, as a no-load, diversified, open-end
management investment company.
The Fund is organized as a series fund and has three portfolios, the
Ultra-Small Company Portfolio, the Aggressive Growth Portfolio and the
Social Responsibility Portfolio. The Fund is authorized to issue
1,000,000,000 shares. The Fund commenced operations as a regulated
investment company on August 5, 1994.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed
by the Fund in the preparation of its financial statements.
Securities Valuation
Securities are valued at the closing price for securities traded on a
principal U.S. securities exchange and on the NASDAQ National Market.
Listed securities for which no sales are reported are valued at the
latest bid price in accordance with the pricing policy established by
the Fund's Board of Directors. When current bid prices are not
available, the most recently available quoted price is used and
adjusted for changes in the index on the exchange on which that
security trades, also in accordance with the pricing policy established
by the Fund's Board of Directors.
Federal Income Taxes
It is the Fund's policy to comply with the requirements of Subchapter M
of the Internal Revenue Code applicable to regulated investment
companies, including the timely distribution of all its taxable income
to its shareholders. Therefore, no Federal Income tax provision has
been recorded.
Deferred Organization Costs
Deferred organization costs are amortized on a straight-line basis over
five years. The initial shareholders, prior to the prospectus being
declared effective on June 30, 1994, have agreed that if any of the
initial shares of each portfolio are redeemed during such amortization
period by any holder thereof, the redemption proceeds will be reduced
by the amount of the then unamortized organization expenses in the same
ratio as the number of shares redeemed bears to the number of total
outstanding shares held at the time of redemption.
At June 30, 1996, each portfolio had deferred organization costs in the
amount of $13,860 payable to Bridgeway Capital Management, Inc., a
shareholder.
<PAGE>
BRIDGEWAY FUND, INC.
NOTES TO FINANCIAL STATEMENTS, continued
Distributions to Shareholders
Distributions to shareholders are recorded when declared. The amount
and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles.
Use of Estimates in Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of
the financial statements, as well as the reported amounts of income and
expenses during the reporting period.
Other
Security transactions are accounted for as of the trade date, the date
the order to buy or sell is executed. Realized gains and losses are
computed on the identified cost basis. Dividend income is recorded on
the ex-dividend date, and interest income is recorded on the accrual
basis.
Assets in the Social Responsibility Portfolio are very low, and will
remain so until the distributor begins marketing this portfolio.
Because commission cost per trade is unacceptably high as a percentage
of assets, the distributor has reimbursed this portfolio for any
commissions above one cent/share (the standard rate to which a $25
minimum applies). The distributor expects to continue this practice
until portfolio net assets reach $750,000.
3. Use of Derivative Instruments
The Aggressive Growth and Social Responsibility Portfolios may use
derivative securities as outlined more fully under "Risk Factors,
"Investment Objective and Policies," and "Principal Investment
Restrictions," in the Prospectus. Buying calls increases a Portfolio's
exposure to the underlying security. Buying puts on a stock market
index tends to limit a Portfolio's exposure to a stock market decline.
All options purchased by the Fund were listed on exchanges and
considered liquid positions with readily available market quotes.
During fiscal year 1996, the Social Responsibility Portfolio bought a
single put on the S&P 500 Index at a cost of $126, which put was also
sold during the fiscal year. This portfolio purchased and sold no
other derivative instruments during the fiscal year. A Summary of
options purchased by the Aggressive Growth Portfolio follows:
<TABLE>
<CAPTION>
Call Options Put Options
# of Calls Cost # of Puts Cost
<S> <C> <C> <C> <C>
Options outstanding 6/30/95 0 $0 0 $0
Options purchased 50 $46,075 2 $269
Options expired (8) ($575) 0 $0
Options closed (22) ($11,200) (2) ($269)
---- ------- --- -----
Outstanding at 6/30/96 20 $34,300 0 $0
==== ======= === =====
</TABLE>
<PAGE>
BRIDGEWAY FUND, INC.
NOTES TO FINANCIAL STATEMENTS, continued
4. Management Contract:
The Fund has entered into a management contract with Bridgeway Capital
Management, Inc. (the "Adviser" and "Distributor"), a shareholder of
the Fund. As compensation for the advisory services rendered,
facilities furnished, and expenses borne by Bridgeway Capital
Management, Inc., the Aggressive Growth Portfolio and the Social
Responsibility Portfolio pay Bridgeway Capital Management, Inc. a fee,
computed and paid monthly based on the average daily net assets of each
portfolio for the month. Such fee is based on the following annual
rates: 0.90% of the first $250 million of each portfolio's average
daily net assets, 0.875% of the next $250 million and 0.85% of any
excess over $500 million. After April 30, 1995, the fee was adjusted
monthly for the Aggressive Growth and the Social Responsibility
Portfolios based upon a performance adjusted rate percentage. The
performance adjustment rate varies with the Fund's performance as
compared to the performance of the Standard & Poor's 500 Composite
Stock Price Index with dividends reinvested (hereinafter "Index" ) and
ranges from -.7% to +.7%. The performance rate adjustment is
calculated at 4.76% of the difference between the performance of the
Fund and that of the Index, except that there is no performance
adjustment if the difference between the Fund performance and the Index
performance is less than or equal to 2%. The Ultra-Small Company
Portfolio pays a flat 0.9% annual management fee, computed daily and
payable monthly, except that while the Portfolio's net assets range
from $27.5 million to $55 million the fee will be $495,000 annually
subject to a maximum rate of 1.49%.
During the fiscal year ended June 30, 1996, each portfolio incurred
$10,090 of accounting fees payable to the Adviser. The Adviser has
waived both the management fees and accounting fees for the year ended
June 30, 1996 for the Aggressive Growth and Social Responsibility
Portfolios. For the Ultra-Small Company Portfolio, the Adviser has
waived all management fees and a portion of the accounting fee.
The Distributor committed to reimburse the Fund for any operating
expenses above 2.5% of net assets during the first two years of
operations. The Distributor currently has no plans to change this
practice, and is required to continue this practice as long as it is
registered to sell shares in the State of California. In addition,
the distributor has been voluntarily reimbursing the Fund for
any
operating expenses above 2.0%, 1.5%, and 2.0% for the Aggressive
Growth, Social Responsibility, and Ultra-Small Company Portfolios,
respectively.
One director of the Fund, John Montgomery, is an owner and director of
the Adviser. Under the Investment Company Act of 1940 definitions, he
is considered to be "affiliated" and "interested." Compensation of Mr.
Montgomery and all officers of the Fund is borne by the Adviser rather
than the Fund.
5. Custodial Agreement:
The Fund has entered into a Custodial Agreement with River Oaks Trust
Company. As compensation for services rendered by the custodian, each
portfolio will pay a fee, computed and paid quarterly based on the
average month end total assets of each portfolio for the quarter. Such
fee is based on the following annual rates: 0.14% of the first $10
million of each portfolio's average net assets, 0.12% of the next $30
million, 0.10% of any excess over $40 million. The fee is subject to
an annual minimum fee of $10,000 for all portfolios combined.
<PAGE>
BRIDGEWAY FUND, INC.
NOTES TO FINANCIAL STATEMENTS, continued
6. Cost, Purchases and Sales of Investment Securities:
Investments have the same cost for tax and financial statement
purposes. Aggregate purchases and sales of investment securities,
other than cash equivalents were as follows:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
<S> <C> <C>
Ultra-Small Company $5,193,561 $2,493,760
Aggressive Growth $2,046,758 $1,188,139
Social Responsibility $319,549 $160,503
</TABLE>
<PAGE>
MANAGEMENT CONTRACT
AGREEMENT, made this 26 day of May, 1997 by and between Bridgeway
Fund, Inc., a Maryland corporation (hereinafter called the "Fund"),
and Bridgeway Capital Management, Inc., a Texas corporation
(hereinafter sometimes called the "Adviser").
WITNESSETH:
WHEREAS the Fund and the Adviser wish to enter into an agreement
setting forth the terms on which the Adviser will perform certain
services for the Fund;
NOW THEREFORE, in consideration of the premises and the covenants
contained hereinafter, the Fund and the Adviser agree as follows:
1. The Fund hereby employs the Adviser to manage the investment
and reinvestment of the assets of the Ultra-Small Index Portfolio and
the Bridgeway 30 Industrials Portfolio and to administer its affairs,
subject to the supervision of the Board of Directors of the Fund, for
the period and on the terms in this agreement set forth. The Adviser
hereby accepts such employment and agrees during such period, at its
own expense, to render the services and to assume the obligations
herein set forth, for the compensation herein provided. The Adviser
shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Fund in any
way or otherwise be deemed as agent of the Fund.
2. The Adviser, at its own expense, shall furnish to the Fund
office space in the offices of the Adviser or in such other place as
may be agreed upon from time to time, and all necessary office
facilities, equipment and personnel (with the exception of
bookkeeping, auditing, state registration, and accounting personnel)
for managing the affairs and investments and keeping the Fund's
records and shall arrange, if desired by the Fund, for members of the
Adviser's organization or its affiliates to serve without salaries
from the Fund as officers or agents of the Fund. The Adviser assumes
and shall pay or reimburse the Fund for: (1) the compensation (if
any) of the directors of the Fund who are interested persons of the
Adviser, and the compensation of the officers of the Fund as such
(with the exception of the Chief Financial Officer, Accounting Officer
or Treasurer), and (2) all expenses incurred by the Adviser or by the
Fund in connection with the management of the investment and
reinvestment of the assets of the Fund and the administration of the
affairs of the Fund, other than those specifically assumed by the Fund
herein.
Except as otherwise expressly provided above, the Fund assumes
and shall pay all expenses of the Fund, including, without limitation:
(1) the charges and expenses of any custodian or depository appointed
by the Fund for the safekeeping of its cash, securities and other
property, (2) the charges and expenses of bookkeeping personnel,
auditors, and accountants, computer services and record keeping, (3)
the charges and expenses of any transfer agents and registrars
appointed by the Fund, (4) brokers' commissions and issue and transfer
taxes chargeable to the Fund in connection with securities
transactions to which the Fund is a party, (5) all taxes and corporate
fees payable by the Fund to federal, state or other government
agencies, (6) the cost of stock certificates (if any) representing
shares of the Fund, (7) fees and expenses involved in registering and
maintaining registrations of the Fund and of its shares with the
Securities and Exchange Commission and qualifying its shares under
state or other securities laws, including the preparation and printing
of prospectuses used for these purposes and for shareholders of the
Fund, (8) all expenses of shareholders' and directors' meetings and of
preparing and printing reports to shareholders, (9) charges and
expenses of legal counsel for the Fund in connection with legal
matters relating to the Fund, including without limitation, legal
services rendered in connection with the Fund's corporate existence,
corporate and financial structure and relations with its shareholders,
registrations and qualifications of securities under federal, state
and other laws, issues of securities and expenses which the Fund has
herein assumed, (10) compensation of directors who are not interested
persons of the Adviser, (11) interest expense, (12) insurance expense,
and (13) association membership dues.
The services of the Adviser to the Fund hereunder are not to be
deemed exclusive, and the Adviser shall be free to render similar
services to others so long as its services hereunder be not impaired
thereby.
3. As compensation for its services rendered and the charges and
expenses assumed and to be paid by the Adviser as described above,
pays the Adviser a base fee computed and payable on or promptly after
the last market day of each month at the following annual rate:
.5% of the value of the Ultra-Small Index Portfolio's
average daily net assets and
.08% of the value of the Bridgeway 30 Industrials Portfolio.
For purposes of calculating such fee, average daily net assets
shall be computed by adding the total asset values less liabilities of
each Portfolio as computed by the Adviser each day (during the month
and dividing the resulting total by the number of days in the month).
Expenses and fees of each Portfolio, including the advisory fee, will
be accrued daily and taken into account in determining net asset
value. For any period less than a full month during which this
agreement is in effect, the fee shall be prorated according to the
proportion which such period bears to a full month.
4. The Fund shall cause its books and accounts to be audited at
least once each year by a reputable, independent public accountant or
organization of public accountants who shall render a report to the
Fund.
5. Subject to and in accordance with the Articles of
Incorporation of the Fund and of the Certificate of Incorporation of
the Adviser, respectively, it is understood that directors, officers,
agents and stockholders of the Fund are or may be interested in the
Adviser (or any successor thereof) as directors, officers or
stockholders, or otherwise, that directors, officers, agents and
stockholders of the Adviser are or may be interested in the Fund as
directors, officers, stockholders or otherwise, that the Adviser (or
any such successor) is or may be interested in the Fund as stockholder
or otherwise and that the effect of any such adverse interests shall
be governed by said Articles of Incorporation and Certificate of
Incorporation, respectively.
6. This agreement shall continue in effect until June 30, 1997
and thereafter from year to year if its continuance after said date is
specifically approved on or before said date and at least annually
thereafter by vote of a majority of the outstanding voting securities
of the Fund or by the Board or Directors of the Fund, and in addition
thereto by a majority of the Directors of the Fund who are not parties
to the agreement or interested persons of the Adviser or affiliated
with any such party except as directors of the Fund, provided,
however, that: (1) this agreement may at any time be terminated
without the payment of any penalty either by vote of the Board of
Directors of the Fund or by vote of a majority of the outstanding
voting securities of the Fund, on sixty days' written notice to the
Adviser, (2) this agreement shall immediately terminate in the event
of its assignment (within the meaning of the federal Investment
Company Act of 1940), and (3) this agreement may be terminated by the
Adviser on ninety days' written notice to the Fund. Any notice under
this agreement shall be given in writing, addressed and delivered, or
mailed postpaid, to the other party at any office of such party.
7. This agreement may be amended at any time by mutual consent
of the parties, provided that such consent on the part of the Fund
shall have been approved by vote of a majority of the outstanding
voting securities of the Fund.
IN WITNESS WHEREOF the parties have hereto executed this
agreement on the day and year first above written.
BRIDGEWAY FUND, INC.
By: _______________________
President
BRIDGEWAY CAPITAL MANAGEMENT, INC.
By: _______________________
President
Consent of Independent Accountants
To the Board of Directors
of Bridgeway Fund, Inc.:
We consent to the inclusion in Port-Effective Amendment No. 4 to the
Registration Statement of Bridgeway Fund, Inc. on Form N-1A (File No. 33-
72416) of our report dated September 12, 1996 on our audit of the
financial statements and financial highlights of the Fund, which report is
included in the Annual Report to Shareholders for the period ended June
30, 1996 which is included in he Registration Statement. We also consent
to the use of our name under the captions "General Information" and
"Auditors" in the Prospectus, Financial Highlights and the Statement of
Additional Information.
/s/ COOPERS & LYBRAND L.L.P.
Houston, Texas
April 16, 1997
<PAGE>
