File No. 33-72416
As filed with the Securities and Exchange Commission on August 29, 1997
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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. 6
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 6
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.
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It is proposed that this filing will become effective
[X] on October 31, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph (a) (2)
If appropriate, check the following box: [ ] This post effective amendment
designates a new effective date for a previously filed PEA.
Page 1 of _____pages
Exhibit Index Page _____
<PAGE>
BRIDGEWAY FUND, INC.
ULTRA-SMALL COMPANY (closed)
ULTRA-SMALL INDEX (new)
AGGRESSIVE GROWTH
SOCIAL RESPONSIBILITY
ULTRA-LARGE 35 INDEX (new)
PROSPECTUS October 31, 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...........................................4
Investment Objectives and Policies.....................6
Disclaimers............................................11
Redemption Reimbursement Fees..........................12
Principal Investment Restrictions......................12
Management of the Fund.................................12
Code of Ethics.........................................14
Distribution of Fund Shares............................14
How to Purchase Shares.................................14
Net Asset Value........................................16
How to Redeem Shares...................................16
Exchange Privilege.....................................17
Dividends and Tax Status...............................17
Performance Information................................18
General Information....................................19
PROSPECTUS October 31, 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, Bridgeway
Ultra-Small Company Portfolio, Bridgeway Ultra-Small Index Portfolio,
Bridgeway Aggressive Growth Portfolio, Bridgeway Social Responsibility
Portfolio, and Bridgeway Ultra-Large 35 Index 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 derivatives), may hedge risk with short sales, and may use
other investment techniques. See: "Risk Factors" (page 3) and Summary of
Investment Techniques Used (page 8). 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 October 31, 1997 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 ULTRA-LARGE
SHAREHOLDER TRANSACTION EXPENSES: COMPANY INDEX GROWTH RESPONSIBILITY 35 INDEX
- ------------------------------------------------------------------------------------------------------------------------------
<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
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)* 0.77% 0.50% 0.45% 0.00% 0.00%
12b-1 Fees 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses (after reimbursements and waivers)** 0.90% 0.25% 1.55% 1.48% 0.07%
Total Fund Operating Expenses (after reimbursements
and waivers) ** 1.67% 0.75% 2.00% 1.48% 0.15%
</TABLE>
See Redemption Reimbursement Fee on page 10.
*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 Ultra-Large 35
Index 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 expenses
for the Ultra-Small Index and Ultra-Large 35 Index 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
Ultra-Large 35 Index through 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
Ultra-Large 35 Index Portfolio, (2) a 5% annual return and
(3) redemption at the end of each time period not in a major market
decline (see Redemption Reimbursement Fee on page 12):
ULTRA-SMALL COMPANY & SOCIAL ULTRA-SMALL ULTRA-LARGE
AGGRESSIVE GROWTH RESPONSIBILITY INDEX 35 INDEX
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 $228 10 Years $175 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 S&P 500 Index has
declined more than 5% in the previous 5 trading sessions may incur a 2%
redemption fee (Bridgeway Ultra-Small Index and Ultra-Large 35 Index
Portfolios 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%
=========== ======== =========== ========= =========== ========
</TABLE>
[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 funds are committed to investing
long-term 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 line, may lack 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" on page 17.)
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 portfolio 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
Ultra-Large 35 Index Portfolio may likewise borrow from banks, but only
for the purpose of making short-sales "against the box" (short-sales of
securities owned). This would happen only in the event a redemption would
otherwise cause a distribution of capital gains. 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 American
Depository Receipts (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, Ultra-Small Index, and Ultra-Large 35 Index Portfolio
could also bear higher risk through the lending of securities. If the
borrowing broker failed to perform, 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 manages 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 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 Ultra-Large 35 Index Portfolio invests on a roughly equal dollar
weighting in the 35 large capitalization stocks which comprise the
Bridgeway Ultra-Large 35 Index. (See "Investment Objectives and Policies"
on page 6 for a description of the Index.) While large companies tend to
exhibit less short-term price volatility than small stocks, historically
they have not recovered as fast from a market decline. Consequently, the
Ultra-Large 35 Index Portfolio may result in higher long term inflation
risk (the risk that the portfolio value will not keep up with inflation)
than the ultra-small portfolios.
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 Ultra-Large 35 Index 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 the Ultra-Small Company
Portfolio shareholders voted 1)to close the Ultra-Small Company Portfolio
to new investors 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 (now determined to be June 30, 1998),
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.
Similar to other index funds, the actual return of this portfolio will
likely underperform the 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,
strongly discouraging market timers and short term traders from investing
in the portfolio, and by the redemption fees outlined under "Redemption
Reimbursement Fees" on page 12. 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 Ultra-Large 35 Index 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 exceed the stock market total
return 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 650 companies according to the following
criteria 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, or as they become
available. 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
supplements 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 defense 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 exceed the stock market total
return, at a level of total risk roughly equal to or less than the
stock market over longer periods of time, 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 Ultra-Large 35 Index Portfolio (hereinafter the "Portfolio") seeks to
meet the total return of the Bridgeway Ultra-Large 35 Index while
minimizing the distribution of capital gains and minimizing costs. This
proprietary index (hereinafter the "Index") is comprised of the 35 largest
U.S. domestic equities as of June 27, 1997, after excluding a tobacco
company and ensuring reasonable industry diversification. (See the list of
companies in the following paragraph.) Consequently, this diversified
Portfolio will invest in securities of companies larger (on average) than
any other mutual fun available as of this prospectus date. Future changes
in the Index will be made with a view toward distributing no capital gains
(first priority) and maintaining very large company size (second priority.)
Low turnover is essential to minimize the tax burden associated with
capital gains in taxable accounts. While composition of the Index is the
absolute, sole responsibility of Bridgeway Capital Management, Inc., any
potential changes would be preceded by an informal (but not necessarily
statistically significant) survey of Portfolio shareholders. A company
will be completely removed from the Index if both (a) it is no longer one
of the largest 35 U.S. companies (as described above) and (b) if it would
not create a capital gain. If a company is no longer one of the 35 largest
U.S. companies, but has appreciated in price, it will remain as a "dormant
company" in both the Index and the Portfolio. New Portfolio inflows will
not be invested in a dormant company; a dormant company's representation in
the Index will decline over time. New net Portfolio inflows are invested
in such a way as to maintain a roughly equal dollar weighting of the 35
"active" (not "dormant") companies in the Index. Composition of this
Index is thus maintained with taxable shareholders in mind. The following
35 companies comprise the Bridgeway Ultra-Large 35 Index as of July 1997.
General Electric, Coca Cola, Microsoft, Exxon, Merck, Intel, Proctor &
Gamble, International Business Machines, Johnson & Johnson, Bristol Myers
Squibb, Pfizer, Wal Mart Stores, American International Group, DuPont E.I.
DeNemours, AT&T, Pepsico, Citicorp, Hewlett Packard, SBC Communications,
Mobile, Walt Disney, Gillette, Chevron, Nationsbank, Bankamerica, Fannie
Mae, Ford, Motorola, Cisco, GTE, Oracle, General Motors, McDonalds, Bell
Atlantic, and Worldcom.
Similar to other index funds, the actual return of this portfolio will
likely underperform the 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
0.15% annually if necessary, keeping portfolio turnover and transaction
expenses to a minimum, strongly discouraging market timers and short
term traders from investing in the portfolio, and by the redemption fee
outlined under "Redemption Reimbursement Fees" (page 10). As a result of
index recomposition and some redemptions, the turnover for this
portfolio should be less than 5% annually.
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. The Adviser invests
in no tobacco companies. 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>
<CAPTION>
SUMMARY OF INVESTMENT TECHNIQUES USED:
ULTRA-SMALL ULTRA-SMALL AGGRESSIVE SOCIAL ULTRA-LARGE
COMPANY INDEX GROWTH RESPONSIBILITY 35 INDEX
<S> <C> <C> <C> <C> <C>
Borrowing (leveraging) No No Yes Yes **
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 Yes Yes No Yes
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.
** THE ULTRA-LARGE 35 PORTFOLIO INDEX WILL ONLY BORROW ON A TEMPORARY BASIS
FOR THE PURPOSE OF SELLING SHORT "AGAINST THE BOX".
<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
Bridgeway Ultra-Small Index Portfolio is not sponsored, sold, promoted, or
endorsed by University of Chicago's Center for Research in Securities
Prices (CRSP) the organization which created and maintains the CRSP
Cap-Based Portfolio 10 Index. CRSP makes no representation or warranty,
express or implied, about the advisability of investing in securities
generally, or in any Bridgeway Fund portfolio specifically. CRSP has no
obligation or liability with respect to the Fund portfolio or its
shareholders.
REDEMPTION REIMBURSEMENT FEE
In order to minimize transaction costs and the negative tax consequences
(for taxable accounts) of high turnover, the Board of Directors may impose
a 2% redemption reimbursement fee for index portfolio shareholders who
redeem in a down market. Specifically, this fee may be imposed any time
the S&P 500 Index (without dividends) has declined more than 5% over the
previous 5 trading days. The adviser believes 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 Ultra-Large 35 Index 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
million under 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%).
AGGRESSIVE GROWTH & SOCIAL RESPONSIBILITY PORTFOLIO
SAMPLE TOTAL MANAGEMENT FEES*
(BASED ON FUND RELATIVE PERFORMANCE)
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, 1996 to
June 30, 1997, the Ultra-Small Company, Aggressive Growth, and Social
Responsibility Portfolios waived management fees of $29,727, $18,126 and
$11,407 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.
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
ULTRA-LARGE 35 INDEX PORTFOLIOS
The Ultra-Small Index and Ultra-Large 35 Index Portfolios impose
no minimum investment for shareholders who purchase shares on a fee for
transaction basis through any broker than can demonstrate a reasonably
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 Ultra-Large 35 Index Portfolio shares
is $1,000,000 (subject to increase by the Board of Directors), with
a $250,000 minimum additional investment.
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 ($166 for an IRA account) 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 "Redemption Reimbursement Fee" (page 10) for important
information on purchase and redemption fees for Ultra-Small Index
and Ultra-Large 35 Index 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
713-661-3265) 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 713-661-3265).
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.
FREQUENT TRADING OF FUND SHARES
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
713-661-3265 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 two 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. Compass Bank 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
COMPASS BANK
PO BOX 4886
HOUSTON, TX. 77210
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 October 31, 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 October 31, 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 5 10
U.S. Government Securities 6 9
Foreign Securities 6 4
New Issues and Closed End Funds 7 4
Management 7 11
The Management Agreement 8 -
Portfolio Transactions and Brokerage 12 12
Net Asset Value 12 14
Redemption in Kind 13 15
Taxation 13 15
Performance Information 14 16
General Information 15 16
Financial Statements 16 -
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 July 20, 1997 the Fund added two new portfolios:
the Ultra-Small Index Portfolio and the Ultra-Large 35 Index
Portfolio. 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 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 (which is used here by permission) is the Center for
Research in Securities Prices (CRSP) Cap-Based 10 Portfolio, and
Ibbotson Associates, Stocks, Bonds, Bills, and Inflation, 1997 Yearbook.
Short-term Risk
Table A below indicates that the short-term volatility of Ultra-Small
stocks as represented by CRSP Cap-Based 10 Portfolio 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 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.
<PAGE>
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
(1926-1996)
Govt. Corp. Large Small Ultra-Small
T-Bills Bonds Bonds Stocks Stocks Stocks
<S> <C> <C> <C> <C> <C> <C>
Avg. Annual Return 3.6% 5.0% 5.6% 10.7% 12.6% 13.9%
Std. Deviation 3.3% 8.7% 8.5% 20.3% 34.1% 46.9%
Beta NA NA NA 1.0 1.4 1.7
Worst year decline NA -9.2% -8.1% -43.3% -58.0% -45.2%
Worst year (1940-1996) NA -9.6% -8.1% -26.5% -30.9% -27.8%
% 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%
</TABLE>
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 16-year cumulative inflation adjusted return
for each of these assets along with the percentage of 16-year periods
from 1926 to 1996 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. While ultra-small stocks have historically declined
farther in a downturn, they have also generally come back faster after a
decline. However, past performance may not be predictive of future results.
Our overall conclusion is that ultra-small stocks may be 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 16-year period.
<PAGE>
<TABLE>
<Captions>
Table B
Long-term Risk Characteristics of Various Asset Classes
ADJUSTED FOR INFLATION (1926-1996)
Govt. Corp. Large Small Ultra-Small
T-Bills Bonds Bonds Stocks Stocks Stocks
<S> <C> <C> <C> <C> <C> <C>
Worst 16-year period -43.9% -49.4% -46.3% -14.6% -4.5% +10.0%
% 16-year declines 28.0% 46.0% 35.0% 1.0% 1.0% 0.0%
</TABLE>
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. In addition, the Ultra-Large 35 Index Portfolio
may borrow from banks up to 50% of net assets for the purpose of selling
a security short "against the box" on a temporary basis to avoid capital
gains distributions.
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 Ultra-Large 35 Index 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 Ultra-Large 35 Index
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 Ultra-Large 35 Index 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 $500 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 1997,
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 $1,650 N/A N/A $1,650/1/
Miles Douglas
Harper, III $1,650 N/A N/A $1,650 /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
April 30, 1997 (the "Agreement"). A second Investment Management Agreement
dated May 26, 1997 addresses management of the new portfolios (i.e. the
Ultra-Small Index Portfolio and the Ultra-Large 35 Index 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
Ultra-Large 35 Index 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 Ultra-Large 35 Index 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 accrued daily and paid monthly.
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
adjustment 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, 1996 through June 30, 1997 and in
accordance with the management fee schedules described above, the
Adviser waived and reimbursed the following 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 $143,395 $0 $29,727 $0
Aggressive Growth $28,802 $0 $18,126 $0
Social Responsibility $1,596 $8,092 $1,596 $9,811
</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%." 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 April 30, 1997 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, 1998. 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.
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, 1997, the Fund's Portfolios paid brokerage
commissions totaling $44,738, as follows:
<TABLE>
<CAPTION>
Brokerage
Portfolio Commissions Paid
<S> <C>
Aggressive Growth $ 5,094
Social Responsibility $ 227
Ultra-Small Company $39,417
</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, 1997.
<TABLE>
<CAPTION>
Percentage Ownership
Ultra- Aggr. Social
Name Address Small Growth Respons. Total
<S> <C> <C> <C> <C> <C>
Donaldson, Lufkin P.O. Box 2052 4.6% 4.6% 6.2% 4.7%
and Jenrette & Co. Jersey City, NJ 07303
National Financial One World Fin'l Center 13.3 12.1%
Services Corp. 200 Liberty St.
New York NY 10281
Technical Risks 2020 N. Memorial 6.1% 10.8% 2.0%
Way Houston, 77007
Gross, G. 9202 Triola Lane 10.7% 0.6%
Houston, TX 77036
Silard, J. 6916 Wilson Ln. 10.0% 0.4%
Bethesda, MD 20817
Sisters of St. c/o Allegheny 7.4% 0.2%
Francis Financial Group
3000 McKnight E Drive
Pittsburg, PA 15237
Sisters of the c/o Allegheny 6.6% 0.2%
Holy Cross Financial Group
3000 McKnight E Drive
Pittsburg, PA 15237
Sisters of Notre c/o Allegheny 5.9% 0.1%
Dame Financial Group
3000 McKnight E Drive
Pittsburg, PA 15237
First Trust Corp. PO Box 173301 5.1% 0.2%
Denver, CO 80217
Kern, K. 4444 Richmond 9.9% 2.1%
Houston, TX 77027
Total above 17.8% 22.2% 17.8% 22.7%
All officers/directors 0.3% 1.2% 7.6% 0.6%
</TABLE>
FINANCIAL STATEMENTS
The Fund's 1997 Annual Report to Shareholders was mailed to
shareholders on August 29, 1997; 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 (Incorporated by reference)
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
11. Consent of Independent Auditors
12. Inapplicable
13. Investment Representation letter from initial Shareholders(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) Number of Record Holders
Title of Class as of June 30, 1997.
Ultra-Small Portfolio 2567
Aggressive Growth Portfolio 213
Social Responsibility Portfolio 54
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 29, 1997
Dear Fellow Ultra-Small Company Shareholder,
Translation: The June quarter was great. On the strength of this quarter,
so was the fiscal year. Our three year performance through August 15 is
fantastic. I'm very happy.
Performance for our third fiscal year ending June 30, 1997 was again very
strong! The Ultra-Small Company Portfolio was up 26.0%, roughly twice the
average small company fund. Our Portfolio ranked 89th of 431 small-company
funds (21st highest percentile) for this period, according to Morningstar.
This is even more impressive within the current (and we believe short-term)
context of the stock market favoring large companies. Compared to other
funds investing in smaller companies, we look particularly sharp: Of 26
funds with average market capitalization below $150 million, the Ultra-
Small Company Portfolio ranked #1 over the last year.
I have mentioned previously that three years is about the shortest
significant period to judge investment performance. Even this doesn't take
you through a full "market cycle," but it's better than following the
daily, weekly, and annual performance charts. Since we just celebrated our
third birthday on August 5 (yes, we had balloons and cake), I thought you
would want to know what Morningstar has to say. Partially on the strength
of a very good July/August not included in the numbers below, we have a
calendar year-to-date return of 31.9%. In Morningstar's "small cap value"
universe of funds, we ranked 7th percentile in 1995, 14th percentile in
1996, and 2nd percentile in 1997 calendar year-to-date. Overall, this
consistency has earned us a first percentile ranking for the full three
year period through August 15. I attribute this consistency to the
diversity of our portfolio, the success of our models, the talent and
dedication of our employees, and our commitment to close the portfolio at
half the level of any previous fund.
In summary, I am extremely pleased with both recent and three year results.
The graph below presents the growth of $10,000 invested in our portfolio on
our inception date compared with two benchmarks. Our initial shareholders
have now passed the "doubling" milestone. The table on the following page
presents our performance according to the formula required by the SEC.
Performance Summary
Your portfolio was up 23.7% during the June quarter, trouncing all our
comparison benchmarks. For the fiscal year ending June 30, we were up
26.0%, also trouncing our performance benchmarks. The following table
presents the details:
June Qtr. 1 Year Life-to-Date
3/31/97 6/30/96 8/5/94 to
to 6/30/97 to 6/30/97 6/30/97**
Ultra-Small Company Portfolio 23.7% 26.0% 29.6%
Lipper Small Cap Stock Funds* 16.8% 13.5% 23.1%
Russell 2000 (small growth stocks)* 16.2% 16.3% 20.1%
*The Lipper Small Cap Stock Funds is an index of small company 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
Translation: Eighteen of our companies were way up in the quarter; one was
down. This combination fueled our 23.7% rise.
Since over 90% of our fiscal year return came in the June quarter, I will
focus on this three month period. Eighteen of our companies increased by
at least 50% during the fiscal year. The highest performer was Maverick
Tube, a producer of pipe for the oil and gas industry--up a whopping 111%
in just three months. After oil prices rose significantly last year,
drilling activity is picking up and companies are drilling to greater
depths. These trends have increased both volume shipments and prices
charged. Because of the high operating leverage of this industry (small
changes in revenues can lead to much greater changes in earnings), profits
took off and Wall Street took notice. Maverick has actually given us a
200% gain since we bought it in May, 1996.
Our #2 performer, Reliability Inc., an electronics test equipment
manufacturer, is a great example of an undiscovered stock with a great
business that went nowhere until the last quarter. The only problem with
some of these great, small, undiscovered companies is that they can stay
great, small, and undiscovered a long time, which means the stock price
remains flat too. When we bought this company in the fall of 1995, not a
single analyst covered the stock. The stock price actually declined
significantly as the stock market rose in 1996--we kept buying more. The
stock price finally exploded in the June quarter.
The rest of the list below shows significant diversification in our
portfolio. Oil and gas and electronics remain significant industries in
our portfolio (12% and 9%, respectively); they certainly helped our
performance in the June quarter. There are also some sleepy industries.
Notice Dixie Yarns, a small textile firm in a mature industry. Hardly high
tech. I hope that such companies give us some downside cushion in the next
technology swoon. One final stock which I'll point out on this list is
China Resources Development (up 60%), our "story stock" last quarter.
Ultra-Small Company "Movers and Shakers" for the June Quarter
Rank Company Industry Total Return
1 Maverick Tube Corp. Oil & Gas Services 111.3%
2 Reliability Inc. Electronics 85.1%
3 Semtech Corporation Electronics 80.2%
4 American Technical Ceramics Corp. Electronics 73.1%
5 Amrion Inc. Retail Stores 71.0%
6 UTI Energy Corp. Oil & Gas 70.6%
7 Engineered Support Systems Inc. Electronics 70.5%
8 U.S. Home & Garden Inc. Machinery 63.6%
9 Nam Tai Electronics Inc. Electronics 62.2%
10 Freds Inc. Retail Stores 62.2%
11 Dixie Yarns Inc. Textiles 60.8%
12 China Resources Development Inc. Rubber / Fabricating 60.0%
13 Moviephone Inc. Leisure-Amusement 58.4%
14 Trans World Entertainment Corp. Retail Stores 53.3%
15 American Coin Merchandising Inc. Leisure-Amusement 52.6%
16 RCM Technologies Inc. Services 51.8%
17 McFarland Energy Inc. Oil & Gas 51.0%
18 Inotek Technologies Corp. Machinery 50.0%
How Bad Can It Get?
Translation: There really is a lot of risk in individual companies this
size. That's why it's important to own a good number of them.
Occasionally we invest in a real loser. In the last quarter the ratio of
winners to losers was 18 to 1, however, a great combination.
Much more remarkable to me than eighteen stocks up 50+% is the fact that
only one stock declined by this amount. Fortunately, this stock represented
less than 0.1% of net assets at the beginning of the quarter. Eighteen up
and one down is a powerful combination. OK, let's peek under the covers of
an ultra-small stock that really didn't make it. We first bought Graphix
Zone in August of last year at $3 5/8. After three years of losses, it
looked like a turnaround candidate. Not quite. This company develops and
distributes interactive computer software. As recently as March the
company had been acquiring the assets of an interactive music publisher.
On April 10 the company introduced a new management team. They announced
plans to reduce employees from 70 to 45, terminate certain development
efforts, and divest "non-core" business interests. Hmmm, I wonder if that
includes the assets purchased the month before. We sold at an average
price of $2.0, a 45% drop. Well, it did get worse. On April 18,
management was negotiating with preferred shareholders--not a good sign.
On June 16, the company no longer met the listing requirements of NASDAQ
and was delisted. I just looked up the current stock price, which is five
cents. Yes, things can get worse.
Disclaimer
Translation: The following is a reminder from the friendly folks at your
fund who worry about liability. It's risky to purchase directly stocks
listed or discussed here, because it's always possible our position may
have changed by the time you receive this correspondence. However, I do
commit that I won't talk favorably in the media about a stock I am
concurrently selling from the Portfolio.
The views expressed here are exclusively those of Fund management. They
are not meant as investment advice. Any favorable (or unfavorable)
description of a holding applies only as of the quarter end, June 30, 1997;
security positions can and do change thereafter. For example, buying a
security you see highlighted in this report seems to me like a formula for
underperforming the Portfolio itself.
Industry Concentration
Translation: Our largest industry concentrations are oil and gas (12%) and
data processing software and service (12%), so I don't consider that we're
adding to risk by making large bets on individual industries. We're just
trying to pick one good company at a time.
Ultra-small companies as an asset class are more volatile than the market
for larger stocks. We avoid increasing risk further through concentration
in too few companies, and we try to dampen some of the downside risk
through our statistical stock picking models. Our largest holding is
typically less than 3% of net assets, and we generally avoid industry or
region concentration risk. The following are the top five industries
represented in the portfolio: 1) data processing software and services -
12.3%, 2) oil and gas - 12.1%, 3) data processing hardware - 10.6%, 4)
electronics / electrics - 9.4%, and 5) retail stores - 8.3%.
Is Closing the Portfolio to New Investors Good or Bad for Performance?
Translation: As a portfolio manager and shareholder, I think this was a
slam dunk good decision. We'll see if our performance continues to bear
this out.
Not long ago I read an article which studied the performance of small-cap
funds after closing to investors. The research was not conclusive, but it
seemed to indicate that these funds typically didn't perform as well after
closing. My own opinion is that these funds probably closed only after
they had already gotten more money in than they could wisely invest. I
believe our closing at such a low level will actually help our performance.
Here are the advantages: 1) By trading smaller "blocks" of company stocks,
we won't unfavorably move the price (or at least not as much as if we
didn't close) when buying and selling shares. 2) A given amount of a
winning company's stock makes a bigger impact on the "bottom line." 3) By
closing at a smaller size, we avoid "size creep," or the need to invest in
larger companies which would move us away from our ultra-small charter. 4)
In a downturn, portfolio shareholders are less likely to panic and sell out
(increasing costs for the remaining shareholders), since they won't be able
to buy back in later. 5) Certain costs associated with state registration
and processing new accounts decline. 6) It is easier to sell stocks which
have gotten too large and reinvest the proceeds in ultra-small stocks again
when you don't have large new inflows to invest. This was a problem for us
in January and again in May before we closed the Portfolio to new investors
(not that you could see it in the performance).
On the other side of the ledger, 1) the expense ratio could be higher since
some costs are spread over a smaller base of assets; however, I believe the
cost savings in item five above largely offsets this. 2) Due to an IRS
rule and a mutual fund accounting quirk, shareholders in a taxable account
in an actively managed fund with a quickly growing asset base get a lower
taxable distribution at the end of the year (assuming they were
shareholders for the full year). This really is nice, because it can add a
couple of percentage points to your after-tax return in a bull market. 3)
More (new) money can be invested in the best ideas; however, I think you
can always sell something you don't like so well to buy something new.
Altogether, I believe one key to success in small cap investing is closing
a fund too early rather than too late. Funds that open up again to new
shareholders frequently say they have good opportunities to put more money
to work. While this may be true, what happens in a different part of the
investment cycle? Let's say the small-cap sector goes up 50% and it's much
harder to find good deals; does the mutual fund company return some of the
money to shareholders? Not likely. The adviser's management fee is
usually tied directly to assets under management, and there is a large
potential conflict of interest here. Interestingly, we do two things to
counteract this conflict of interest at Bridgeway. First, two of our
portfolios have performance based management fees. If too much money
causes these portfolios to underperform, our management fee plummets along
with performance. In the Ultra-Small Company Portfolio, the Portfolio
compensates the Adviser for closing the portfolio at a very low level. I
believe this has worked strongly to the benefit of shareholders, and I
believe some of our recent excellent performance (in June and July)
testifies to this.
Now that Ultra-Small Company is Closed, Will We Start Ultra-Small II?
Translation: No.
We have committed to do no new offering which competes with this portfolio
for our best ultra-small stock ideas. However, we have started an index
fund on the ultra-small concept. The Bridgeway Ultra-Small Index Portfolio
invests passively in a representative sample of the 2600 stocks which make
up the ultra-small universe on the exchanges and NASDAQ's National Market
System. We're not trying to beat the ultra-small market return with this
new portfolio, we're just trying to match it. And we'll do our trading in
such a way as to make sure we're not competing with your Ultra-Small
Company Portfolio. Someday, I would also like to have a micro-cap fund
which invests in companies just bigger than ultra-small. However, my
(your) board of directors doesn't want me to get spread too thinly, so we
won't do this until we have enough well-trained backup staff to support
another actively managed portfolio.
I Hate High Expenses--or More with Less
Translation: We're very serious about reducing our costs. This quarter we
have completed efforts to reduce the "custodian" bank expense and to
eliminate the IRA trustee fee for IRA accounts.
In my last shareholder letter I committed to telling you for several
quarters what we were doing to get our Portfolio costs down. Our target is
1.25% of net assets when net assets reach $50 million. Annual expenses are
currently 2.0% (without waiving fees or reimbursing expenses). Last
quarter I highlighted our decision to discontinue all marketing and
advertising. This quarter I'd like to write about two new efforts. We
conducted a nationwide search for a new custodian to reduce the portfolio
expense associated with holding securities in "safekeeping," a federal
mutual fund requirement. We found two firms we thought could do a good
job, but in the end our current custodian met the lowest cost provider's
bid. This should reduce the custodian cost for Ultra-Small Company
Portfolio about 50% in the next year (less in our other portfolios).
I'm just as excited about another development. We are changing the trustee
for our IRA accounts. The current cost to IRA shareholders for this
service is $20 per year. Some shareholders had suggested eliminating the
fee for larger accounts, as some other mutual fund families do. I opposed
this idea, however. Why should the smaller accounts pay their full way
while the wealthier accounts get a free ride? So we looked hard at how to
get the cost down for everyone. I am pleased to report that we have been
successful. We have reduced the cost and the Adviser has agreed to make up
the difference in its entirety, so that the 1997 IRA trustee fee will be
$0. Obviously, it's costing the Adviser something, but we wanted to send a
signal we are very serious about our low cost efforts. We delayed sending
out the 1996 bill until we could make this announcement. So, if your
Bridgeway account is for an IRA, your invoice for 1996 (hopefully the last
ever) should arrive soon. If you already paid your 1997 fee, we'll be
crediting your account later this year.
Achilles Heel
I am pleased with our investment performance, our progress on cost
reduction, and parts of our customer service. The one area I can't say I'm
satisfied with is the timeliness of our confirmations and quarterly account
statements--so if this has been an inconvenience to you, my apologies. In
retrospect, we should have hired the new staff below six months earlier, a
mistake for which I take full responsibility. I expect it to be another
two months before you see the fruits of our efforts to improve our record.
Next to the graph of investment performance in our conference room is now a
graph of the timeliness of our net asset value reporting each day and the
percentage of confirmations mailed within 48 hours. Our recent performance
in this area has not been acceptable.
Biggest Mistake
Translation: We (the Adviser) made a mistake. We admit it. We own it.
We eat it.
First, a bit of philosophy. . . As a shareholder, you are an owner of the
Fund. As the manager appointed by your Board of Directors to manage the
Fund, I am your "hired hand." I prefer to think of myself as a steward of
your assets which you entrusted to the Fund. So, as my boss, I think you
are entitled to know the bad things that happen as well as the good.
The worst thing that happened at the Fund over the last year was that
Bridgeway staff made an error calculating the dividend distribution in
December, 1996, resulting in too low a dividend. We are in the process of
petitioning the IRS to make the remaining distribution this fall. There
are penalties and interest to the IRS (approximately $19,800) which the
Adviser, not the Portfolio, not you - the shareholder - will pay. This
mistake will not happen again.
New Folks at Bridgeway
Translation: I enjoy working with each of the people that make up
Bridgeway's staff. Really, I can't believe anyone's paying me to have this
much fun. Let me introduce three new people.
As our assets have gone up more than five-fold in the last year, we have
hired some new people at Bridgeway. I'm impressed with the caliber of each
one of these employees and am just as impressed by the strength we gain
through diversity. Each new employee individually has a different strength
or skill they bring with them. Dianne has been with us on a temporary
basis while she took off a semester from one of the toughest liberal arts
colleges in the country. She's mentally sharp, learns quickly, and has a
bright, positive, and contagious attitude. She has been helping with a
number of different projects, including some accounting, some new software,
and also qualifying companies for our Social Responsibility Portfolio.
By the time Kim was 21, she'd been an entrepreneur, a landlord, a stock
broker's assistant, and a part-time mechanic; not to mention a full time
finance major at Texas A&M University. Kim's a potential powerhouse here,
and she's helping me compile the myriad of data to run our models.
Cheryl is a native Houstonian with a couple of "grown" kids and a tall
handsome grandson. She is working with our fund and shareholder accounting
while pursuing a bachelor's degree at the University of Houston. She
differentiated herself from over 90 other applicants by her experience,
long term employment for one previous company, and her accounting
knowledge.
Conclusion
We have passed several milestones very important to Bridgeway within the
last year. I want to thank each one of you who has demonstrated unusual
trust by investing in and with a young company. Thank you for helping
provide a living for myself and for each of us at Bridgeway. As steward of
your money, I hope and pray to earn your continued trust and to never take
it for granted.
I trust you celebrate with us the Fiscal Year 1997 results. As always, I
appreciate your feedback. We keep a bulletin board of shareholder comments
and suggestions and we take them very seriously. Please keep your ideas
coming.
Sincerely,
John Montgomery
<PAGE>
July 29, 1997
Dear Fellow Aggressive Growth Shareholder,
After two quarters of underperforming our market benchmarks, the
Aggressive Growth Portfolio returned to its winning ways in the June
quarter. The Portfolio gained 20.1% in the quarter, handily beating
the market and peer group indicators. For the entire fiscal year, the
Portfolio was up 19.9%, beating our peer group of capital appreciation
funds and the Russell 2000 Index of small stocks. The Portfolio
ranked #20 of 119 aggressive growth funds for the fiscal year
according to Morningstar. However, the largest U.S. companies
represented by the S&P 500 Index lead most other indicators for the
fiscal year, including our portfolio.
Performance Summary
The table on the next page presents our quarter, fiscal year, and
life-to-date financial results according to the formula required by
the SEC. The graph below shows we have done quite well for the full
period since inception. I would like to highlight two trends from
this graph. First, we have been in a wonderful bull market. The S&P
500 Index has averaged a 29% return for the last three years. This is
almost three times the long-term historical average, and I don't
expect this to continue unabated. We are overdue for a true market
correction (the market really does go both up and down). However, we
subscribe to a "buy and hold" strategy and strongly discourage trying
to time the market. We believe the stock market is still an excellent
place for long term investments; but please--don't put any money here
you might need in the next couple of years. With this caveat, I'll
say that my wife and my own IRA money is still fully invested in the
three actively managed Bridgeway portfolios and we have no plans to
change this over the next decade.
The second dynamic trend from the graph below is the wide divergence
between the returns of large and small companies. The S&P 500 (large
stock index) has beaten the Russell 2000 (small stock index) by 37
percentage points for the full life of our Portfolio. Much of this
was during the last twelve months when the S&P beat the Russell 2000
by 18.4%. In fact, there have been only five calendar years over the
last seven decades in which large stocks have outperformed small ones
by this amount. I wouldn't normally expect our Portfolio to do as
well in this environment since we invest in all size companies and our
models have favored small stocks recently.
Your portfolio was up 20.1% during the June quarter, beating all our
comparison benchmarks. For the fiscal year ending June 30, we were up
19.9%, beating two of our three benchmarks. The following table presents
the details:
June Qtr. 1 Year Life-to-Date
3/31/97 6/30/96 8/5/94 to
to 6/30/97 to6/30/97 6/30/97**
Aggressive Growth Portfolio 20.1% 19.9% 28.2%
S&P 500 Index (large companies)* 17.2% 34.7% 28.6%
Russell 2000 (small growth companies)* 16.2% 16.3% 20.1%
Lipper Capital Appreciation Funds* 13.6% 14.3% 20.0%
*The Russell 2000 and S&P 500 are unmanaged indexes of large and small
companies, 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
Translation: Ten of our companies were way up in the quarter; none were
down by this amount. This combination fueled our 20% rise.
Since practically all of our fiscal year return came in the June quarter, I
will focus on this three month period. Ten of our companies increased by
at least 50% during the quarter. Unfortunately, none of these were our
core holdings, such as drove our performance last year. Each of these were
among our smaller diversifying positions and together represented just 18%
of net assets at the end of the quarter. Nevertheless, these little
powerhouses really helped fuel our performance. Four of the ten were in
the electronics industry. The highest performer was Teledata
Communications, an Israeli telecommunications supplier for both developed
and developing nations--up 92% in just three months. After declining sales
in 1994 and a loss for 1995, the company really got back on track over the
last year. March quarter sales more than doubled and profits were up even
more on the strength of new product acceptance.
The second highest performing stock was Plexus Corporation, a contract
provider of design, manufacturing and testing services, up 89%. This
company is a good example of what one of our "multi-factor" models can pick
up on very early in a growth company--good growth, valuation, and technical
characteristics that made Plexus an early buy before posting a tremendous
quarterly gain. The company sports a below-industry level of debt.
However, as a contract provider, it has high operating leverage, meaning
that modest increases in revenues can lead to much larger percentage
increases in earnings.
Much more remarkable to me than ten stocks up 50+% is the fact that not a
single one declined by this amount. In fact, the largest decline (-13%) of
any stock held at quarter end was Bell Microproducts, a semiconductor
product distributor. The company announced a sales slowdown and earnings
reversal at the quarter end. Here's the full list of our quarterly
"movers and shakers":
Aggressive Growth "Movers and Shakers" for the June Quarter
Rank Company Industry Total Return
1 Teledata Communications Telecommunications 92.3%
2 Plexus Corporation Electronics/Electric 89.2%
3 Reliability Inc. Electronics/Electric 85.1%
4 Creative Technology Ltd. Data Processing Hardware 83.8%
5 JPM Company Electronics/Electric 84.1%
6 Semtech Corporation Electronics/Electric 80.2%
7 Staffmark Inc. Services 73.7%
8 Dataworks Corp. Data Processing Software 52.9%
9 Superior Telecom Inc. Telecommunications 51.8%
10 McFarland Energy Oil & Gas 51.0%
Disclaimer
Translation: The following is a reminder from the friendly folks at your
fund who worry about liability. It's risky to purchase directly stocks
listed or discussed here, because it's always possible our position may
have changed by the time you receive this correspondence. However, I do
commit that I won't talk favorably in the media about a stock I am
concurrently selling from the Portfolio.
The views expressed here are exclusively those of Fund management. They
are not meant as investment advice. Any favorable (or unfavorable)
description of a holding applies only as of the quarter end, June 30, 1997;
security positions can and do change thereafter. For example, buying a
security you see highlighted in this report seems to me like a formula for
underperforming the Portfolio itself.
Industry Concentration
Translation: While we do invest more portfolio money (5% to 10% of the
total portfolio) in some individual companies, the overall portfolio is
well diversified by industry and region. In addition to seeking above
market returns, we are also continually managing portfolio risk.
No industry made up as much as 12% of our portfolio at quarter end. While
I'm always concerned with diversification, this figure indicates stronger
than normal diversification for the Aggressive Growth Portfolio. We are
just trying to pick one good company at a time. The following are the top
five industries represented in the portfolio: 1) data processing software
and services - 11.4%, 2) retail stores - 11.1%, 3) services - 9.9%, 4)
telecommunication - 9.2%, and 5) food - 7.8%.
This overall industry diversification may mask another portfolio
characteristic: our willingness to concentrate assets in what I call "core
holdings." Three companies represented more than 5% of net assets at
quarter end: TJX Companies (8.6%), Airborne Freight (5.8%), and Smithfield
Foods (5.8%). The portfolio held 46 companies at fiscal year end with 44%
of net assets in the top ten holdings.
I Hate High Expenses--or More with Less
Translation: We're very serious about reducing our costs. This quarter we
have completed efforts to reduce the "custodian" bank expense and to
eliminate the IRA trustee fee for IRA accounts.
In my last shareholder letter I committed to telling you for several
quarters what we were doing to get our Portfolio costs down. Annual
expenses are currently 2.0% (slightly more before waiving a portion of
management fees). Last quarter I highlighted our decision to discontinue
all marketing and advertising. This quarter I'd like to write about two
new efforts. We conducted a nationwide search for a new custodian to
reduce the portfolio expense associated with holding securities in
"safekeeping," a federal mutual fund requirement. We found two firms we
thought could do a good job, but in the end our current custodian met the
lowest cost provider's bid. This should reduce the custodian cost
significantly in Fiscal Year 1998.
I'm just as excited about another development. We are changing the trustee
for our IRA accounts. The current cost to IRA shareholders for this
service is $20 per year. Some shareholders had suggested eliminating the
fee for larger accounts, as some other mutual fund families do. I opposed
this idea, however. Why should the smaller accounts pay their full way
while the wealthier accounts get a free ride? So we looked hard at how to
get the cost down for everyone. I am pleased to report that we have been
successful. We have reduced the cost, and the Adviser has agreed to take
make up the difference in its entirety, so that the 1997 IRA trustee fee
will be $0. Obviously, it's costing the Adviser something, but we wanted
to send a signal we are very serious about our low cost efforts. We
delayed sending out the 1996 bill until we could make this announcement.
So, if your Bridgeway account is for an IRA, your invoice for 1996
(hopefully the last ever) should arrive soon. If you already paid your
1997 fee, we'll be crediting your account later this year.
Achilles Heel
I am pleased with our investment performance, our progress on cost
reduction, and parts of our customer service. The one area I can't say I'm
satisfied with is the timeliness of our confirmations and quarterly account
statements--so if this has been an inconvenience to you, my apologies. In
retrospect, we should have hired the new staff below six months earlier, a
mistake for which I take full responsibility. I expect it to be another
two months before you see the fruits of our efforts to improve our record.
Next to the graph of investment performance in our conference room is now a
graph of the timeliness of our net asset value reporting each day and the
percentage of confirmations mailed within 48 hours. Our recent performance
in this area has not been acceptable.
Biggest Mistake
Translation: We (the Adviser) made a mistake. We admit it. We own it.
We eat it.
First, a bit of philosophy. . . As a shareholder, you are an owner of the
Fund. As the manager appointed by your Board of Directors to manage the
Fund, I am your "hired hand." I prefer to think of myself as a steward of
your assets which you entrusted to the Fund. So, as my boss, I think you
are entitled to know the bad things that happen as well as the good.
The worst thing that happened at the Fund over the last year was that
Bridgeway staff made an error calculating the dividend distribution in
December, 1996, resulting in too low a dividend. We are in the process of
petitioning the IRS to make the remaining distribution this fall. There
are penalties and interest to the IRS (approximately $6,200) which the
Adviser, not the Portfolio, not you - the shareholder - will pay. This
mistake will not happen again.
New Folks at Bridgeway
Translation: I enjoy working with each of the people that make up
Bridgeway's staff. Really, I can't believe anyone's paying me to have this
much fun. Let me introduce three new people.
As our Fund assets have gone up more than five-fold in the last year, we
have hired some new people at Bridgeway. I'm impressed with the caliber of
each one of these employees and am just as impressed by the strength we
gain through diversity. Each new employee individually has a different
strength or skill they bring with them. Dianne has been with us on a
temporary basis while she took off a semester from one of the toughest
liberal arts colleges in the country. She's mentally sharp, learns
quickly, and has a bright, positive, and contagious attitude. She has been
helping with a number of different projects, including some accounting,
some new software, and also qualifying companies for our Social
Responsibility Portfolio.
By the time Kim was 21, she'd been an entrepreneur, a landlord, a stock
broker's assistant, and a part-time mechanic; not to mention a full time
finance major at Texas A&M University. Kim's a potential powerhouse here,
and she's helping me compile the myriad of data to run our models.
Cheryl is a native Houstonian with a couple of "grown" kids and a tall
handsome grandson. She is working with our fund and shareholder accounting
while pursuing a bachelor's degree at the University of Houston. She
differentiated herself from over 90 other applicants by her experience,
long term employment for one previous company, and her accounting
knowledge.
Conclusion
We have passed several milestones very important to Bridgeway within the
last year. I want to thank each one of you who has demonstrated unusual
trust by investing in and with a young company. Thank you for helping
provide a living for myself and for each of us at Bridgeway. As steward of
your money, I hope and pray to earn your continued trust and to never take
it for granted.
I trust you celebrate with us the Fiscal Year 1997 results. As always, I
appreciate your feedback. We keep a bulletin board of shareholder comments
and suggestions and we take them very seriously. Please keep your ideas
coming.
Sincerely,
John Montgomery
<PAGE>
July 29, 1997
Dear Fellow Social Responsibility Shareholder,
Our performance in the June quarter and 1997 Fiscal Year was very good in
absolute terms--up 10.9% and 16.9%, respectively. However, we lagged our
primary market benchmarks in both periods as indicated by the table and
graph below. The Social Responsibility Portfolio ranked 15th of 24
socially responsible equity funds according to the Social Investment Forum
over the last year.
Performance Summary
The following table presents SEC standardized performance for the March
quarter, one year, and life-to-date**:
June Qtr. 1 Year Life-to-Date
3/31/97 6/30/96 8/5/94 to
to 6/30/97 to 3/31/97 6/30/97**
Social Responsibility Portfolio 10.9% 16.9% 21.5%
S&P 500 Index (large stocks)* 17.2% 34.7% 28.6%
Lipper Growth and Income Funds* 14.8% 28.9% 22.7%
*The S&P 500 is an unmanaged index of large stocks, with dividends
reinvested. The Lipper Growth Funds reflect the aggregate record of
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.
Explanation of Performance
The largest stocks of the S&P 500 walked away from the rest of the market
over the last quarter and fiscal year. With the notable exception of our
pharmaceutical companies, our portfolio has concentrated primarily in the
next tier of more "mid-cap" stocks, and this has hurt our performance
relative to the S&P 500 Index. In addition, with the all-time valuations
of large company stocks, we have held a higher percentage of cash in the
last quarter, and this also hurt our relative performance. With the
addition of Diane and Kim (see below) to help qualify more stocks outside
the Council on Economic Priorities database, we expect to be more fully
invested in the current quarter.
The highest performing stock during the June quarter was Pfizer, up 42%.
This company benefited from the tremendous runup of very large, "blue chip"
stocks.
Largest Positions
The following are our largest ten portfolio positions on June 30, 1997
% of Net
Company Assets Industry
The Gap, Inc. 5.2% Retail Stores
Fuller (HB) 4.4% Chemicals
Student Loan Marketing 4.4% Finance
MBNA Corp 4.3% Banking
Sofamor/Danek Group 4.2% Medical equipment/Supplies
Safeway Stores 4.1% Retail Stores
Coca-Cola Company 3.7% Beverages
Great Atlantic & Pacific 3.6% Retail Stores
Medtronic, Inc. 3.6% Medical equipment/Supplies
Cinncinatti Bell 3.6% Telecommunications
41.0%
NIKE
We received several phone calls from shareholders and potential
shareholders concerned about poor publicity over the last year concerning
Nike, the shoe manufacturer. The company has come under major criticism
for workplace conditions and especially low wages in their plants located
in developing nations. In responding to these allegations, the company
commissioned Andrew Young, past U.S. ambassador to the United Nations, to
review company policies and practices in these plants. Based on our review
of Young's report and a report by a human rights group, we believe there
have been some major incidents of abuse in plants of Nike's subcontractors,
that there is no maliciousness on Nike's part, that the company has taken
some specific measures for improvement, but that neither Nike's level of
disclosure, wages, nor actions taken are exemplary, as we would desire of
our companies.
Therefore, we are selling the holding from our portfolio for three reasons:
1) The company has fallen from the top fifth to the second fifth of our
social ranking. 2) Nike receives a "C" from the Council on Economic
Priorities for it's (lack of) disclosure. 3) We tend to side more with
Nike's critics rather than the company.
Disclaimer
Translation: The following is a reminder from the friendly folks at your
fund who worry about liability. It's risky to purchase directly stocks
listed or discussed here, because it's always possible our position may
have changed by the time you receive this correspondence. However, I do
commit that I won't talk favorably in the media about a stock I am
concurrently selling from the Portfolio.
The views expressed here are exclusively those of Fund management. They
are not meant as investment advice. Any favorable (or unfavorable)
description of a holding applies only as of the quarter end, June 30, 1997;
security positions can and do change thereafter. For example, buying a
security you see highlighted in this report seems to me like a formula for
underperforming the Portfolio itself.
New Folks at Bridgeway
As our total Fund assets have gone up more than five-fold in the last year,
we have hired some new people at Bridgeway. I'm impressed with the caliber
of each one of these employees and am just as impressed by the strength we
gain through diversity. Each new employee individually has a different
strength or skill they bring with them. Dianne has been with us on a
temporary basis while she took off a semester from one of the toughest
liberal arts colleges in the country. She's mentally sharp, learns
quickly, and has a bright, positive, and contagious attitude. She has been
helping with a number of different projects, including some accounting,
some new software, and also qualifying companies for our Social
Responsibility Portfolio.
By the time Kim was 21, she'd been an entrepreneur, a landlord, a stock
broker's assistant, and a part-time mechanic; not to mention a full time
finance major at Texas A&M University. Kim's a potential powerhouse here,
and she's helping me compile the myriad of data to run our models.
Cheryl is a native Houstonian with a couple of "grown" kids and a tall
handsome grandson. She is working with our fund and shareholder accounting
while pursuing a bachelor's degree at the University of Houston. She
differentiated herself from over 90 other applicants by her experience,
long term employment for one previous company, and her accounting
knowledge.
Conclusion
As always, I appreciate your feedback. We keep a bulletin board of
shareholder comments and suggestions and we take them very seriously.
Please keep your ideas coming.
Sincerely,
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, 1997, 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 1997 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 management of Bridgeway Fund, Inc. 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, 1997, 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,
1997, 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,
1997 and 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
August 29, 1997
<PAGE>
BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1996
Industry Shares Value
Company
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
Industry Shares Value
Company
Machinery- 8.1%
JLG Industries 940 $69,795
Chart Industries 1000 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. * 4900 49,919
Louisiana Land & Exploration Co. 1300 74,913
McFarland Energy, Inc. * 2400 21,600
146,432
Retail Stores- 18.3%
Tuesday Morning Corporation * 1200 16,050
Carson Pirie Scott & Company * 1000 26,750
TJX Companies, Inc. * # 3800 128,250
Damark International, Inc. * 1700 23,800
CompUSA, Inc. * # 1280 43,680
One Price Clothing Store, Inc. * 4400 24,200
Nutrition for Life Int'l, Inc. * 800 12,000
274,730
Securities Industry- 2%
Advest Group, Inc. * 1500 15,375
JB Oxford Holdings, Inc. * 5300 15,238
30,613
Steel/Iron- 1.1%
Northwest Pipe Company * 1000 17,000
Metals (Titanium)- 4.1%
Oregon Metallurgical Corporation * 2100 61,950
Services- 1.9%
Team Rental Group, Inc. * 2000 28,000
Total Common Stocks (Identified Cost $1,216,057) $1,347,129
<PAGE>
BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1996
Industry Shares Value
Company
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
31,371
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.
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
Industry Shares Value
Company
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
Medical Equipment/Supplies- 10.5%
Johnson & Johnson 230 11,385
Medtronics, Inc. 278 15,568
<PAGE>
BRIDGEWAY FUND, INC.
SOCIAL RESPONSIBILITY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1996
Industry Shares Value
Company
Medical Equipment/Supplies (continued)
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: (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.
See accompanying notes to financial statements.
<PAGE>
BRIDGEWAY FUND, INC.
ULTRA-SMALL COMPANY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1996
Industry Shares Value
Company
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
<PAGE>
BRIDGEWAY FUND, INC.
ULTRA-SMALL COMPANY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1996
Industry Shares Value
Company
Data Processing (continued)
Symix Systems, Inc. * 5,900 $92,925
Xata Corporation * 1,000 10,375
541,175
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
<PAGE>
BRIDGEWAY FUND, INC.
ULTRA-SMALL COMPANY PORTFOLIO, Continued
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1996
Industry Shares Value
Company
Hotels/Motels/Inns- 0.1%
Buckhead America Corp. * 1,000 $6,380
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
Oil & Gas- 11%
Astrotech International Corp. * 2,000 11,250
Bellwether Exploration Co. * 7,700 46,200
Comstock Resources, Inc. * 9,500 96,781
<PAGE>
BRIDGEWAY FUND, INC.
ULTRA-SMALL COMPANY PORTFOLIO, Continued
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1996
Industry Shares Value
Company
Oil & Gas (continued)
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
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
<PAGE>
BRIDGEWAY FUND, INC.
ULTRA-SMALL COMPANY PORTFOLIO, Continued
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1996
Industry Shares Value
Company
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.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 1997
Ultra-Small Aggressive Social
Company Growth Responsibility
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Assets:
Investments at value * $29,405,249 $3,475,733 $629,556
Cash 1,379,012 31,622 17,789
Receivable for investments sold 10,951 89,672 0
Receivable for interest 6,084 928 911
Receivable for dividends 0 68 0
Receivable from adviser 18,859 12 40
Prepaid expenses 7,307 3,797 3,007
Deferred organization costs 9,216 9,216 9,217
Total assets 30,836,678 3,611,048 660,520
Liabilities:
Payable for investments purchased 738,317 171,843 0
Payable for management fee 3,659 254 47
Payable for organization costs 9,254 9,254 9,254
Accrued expenses 15,246 9,207 13,290
Total liabilities 766,476 190,558 22,591
Net Assets $30,070,202 $3,420,490 $637,929
Shares Outstanding 1,458,054 182,035 39,363
Net asset value, offering and redemption price
per share $20.62 $18.79 $16.21
Net Assets Represent:
Paid-in capital $24,321,986 $2,744,714 $523,669
Undistributed net realized gain/(loss) 104,441 175,520 (2,796)
Net unrealized appreciation of investment 5,643,775 500,256 117,056
Net assets $30,070,202 $3,420,490 $637,929
* Investments at cost $23,761,474 $2,975,477 $512,500
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC.
STATEMENT OF OPERATIONS
For the year ended June 30, 1997
Ultra-Small Aggressive Social
Company Growth Responsibility
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment income:
Dividends $21,508 $7,009 $2,972
Interest 22,905 7,137 4,883
Total income 44,413 14,146 7,855
Expenses:
Management fees 143,395 28,802 1,596
Accounting fees 73,009 14,857 9,811
Audit fees 10,001 7,002 7,002
Custody 16,262 3,196 632
Amortization of organization costs 4,632 4,632 4,632
Insurance 4,200 701 125
Legal 19,341 3,846 297
Registration fees 6,131 1,245 1,066
Director fees 1,102 1,099 1,099
Miscellaneous 29 30 30
Total expenses 278,102 65,410 26,290
Less fees waived (29,727) (18,126) (11,407)
Less expenses reimbursed 0 0 (8,092)
Net expenses 248,375 47,284 6,791
Net investment income (loss) (203,962) (33,138) 1,064
Net realized and unrealized gain on investments:
Net realized gain on investments 238,109 187,476 8,591
Net change in unrealized appreciation 5,324,346 372,114 71,190
Net realized and unrealized gain 5,562,455 559,590 79,781
Net increase in assets
resulting from operations: $5,358,493 $526,452 $80,845
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
<S> <C> <C> <C>
Ultra-Small Company Portfolio Year ended Year ended
Increase (decrease) in net assets: June 30, 1997 June 30, 1996 see * below
Operations:
Net investment loss ($203,962) ($23,352) ($2,117)
Net realized gain (loss) on investments 238,109 371,952 (3,571)
Net change in unrealized appreciation 5,324,346 247,576 70,908
Net increase resulting from operations 5,358,493 596,176 65,220
Distributions to shareholders:
From net investment income 0 0 (4)
From realized gains on investments (228,177) (44,243) (220)
Total distributions to shareholders (228,177) (44,243) (224)
Fund share transactions:
Proceeds from sale of shares 23,069,647 3,392,930 568,271
Reinvestment of dividends 209,831 43,592 224
Cost of shares redeemed (2,897,183) (98,400) 0
Net increase from Fund share transactions 20,382,295 3,338,122 568,495
Net increase in net assets 25,512,611 3,890,055 633,491
Net assets:
Beginning of period 4,557,591 667,536 34,045
End of period $30,070,202 $4,557,591 $667,536
Number of Fund shares:
Sold 1,341,007 217,309 55,498
Issued on dividends reinvested 12,394 3,338 22
Redeemed (168,592) (6,219) 0
Net increase 1,184,809 214,428 55,520
Outstanding at beginning of period 273,245 58,817 3,297
Outstanding at end of period 1,458,054 273,245 58,817
Aggressive Growth Portfolio
Increase (decrease) in net assets:
Operations:
Net investment loss ($33,138) ($9,319) ($465)
Net realized gain (loss) on investments 187,476 166,362 (1,720)
Net change in unrealized appreciation 372,114 95,798 32,675
Net increase resulting from operations 526,452 252,841 30,490
Distributions to shareholders:
From net investment income 0 0 0
From realized gains on investments (128,863) (4,442) (48)
Total distributions to shareholders (128,863) (4,442) (48)
Fund share transactions:
Proceeds from sale of shares 2,150,757 989,807 188,873
Reinvestment of dividends 123,538 3,894 48
Cost of shares redeemed (753,879) (15,887) 0
Net increase from Fund share transactions 1,520,416 977,814 188,921
Net increase in net assets 1,918,005 1,226,213 219,363
Net assets:
Beginning of period 1,502,485 276,272 56,909
End of period $3,420,490 $1,502,485 $276,272
Number of Fund shares:
Sold 129,254 67,496 17,837
Issued on dividends reinvested 7,362 294 5
Redeemed (44,758) (1,209) 0
Net increase 91,858 66,581 17,842
Outstanding at beginning of period 90,177 23,596 5,754
Outstanding at end of period 182,035 90,177 23,596
Social Responsibility Portfolio
Increase (decrease) in net assets:
Operations:
Net investment income (loss) $1,064 ($357) $295
Net realized gain (loss) on investments 8,591 10,228 (854)
Net change in unrealized appreciation 71,190 39,110 7,469
Net increase resulting from operations 80,845 48,981 6,910
Distributions to shareholders:
From net investment income 0 (297) (19)
From realized gains on investments (21,520) 0 0
Total distributions to shareholders (21,520) (297) (19)
Fund share transactions:
Proceeds from sale of shares 254,732 268,541 33,982
Reinvestment of dividends 21,520 297 19
Cost of shares redeemed (58,608) (20,983) (518)
Net increase from Fund share transactions 217,644 247,855 33,483
Net increase in net assets 276,969 296,539 40,374
Net assets:
Beginning of period 360,960 64,421 24,047
End of period $637,929 $360,960 $64,421
Number of Fund shares:
Sold 17,127 20,594 3,152
Issued on dividends reinvested 1,556 23 2
Redeemed (3,911) (1,577) (45)
Net increase 14,772 19,040 3,109
Outstanding at beginning of period 24,591 5,551 2,442
Outstanding at end of period 39,363 24,591 5,551
</TABLE>
* from August 5, 1994 (commencement of operations) to June 30, 1995
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC.
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the period)
<S> <C> <C> <C>
Year ended Year ended
Ultra-Small Company Portfolio June 30, 1997 June 30, 1996 see * below
Per share data
Net asset value, beginning of period $16.68 $11.35 $10.33
Income (loss) from investment operations:
Net investment loss (0.24) (0.21) (0.04)
Net realized and unrealized gain 4.50 6.03 1.07
Total from investment operations 4.26 5.82 1.03
Less distributions to shareholders:
Net investment income 0.00 0.00 0.00
Net realized gains (0.32) (0.49) (0.01)
Total distributions (0.32) (0.49) (0.01)
Net asset value, end of period $20.62 $16.68 $11.35
Total return [1] 26.0% 52.4% 10.5%
Ratios & Supplemental Data
Net assets, end of period $30,070,202 $4,557,591 $667,536
Ratios to average net assets: [2]
Expenses net of waivers and reimbursements 1.67% 1.97% 1.68%
Expenses before waivers and reimbursements 1.87% 3.07% 8.34%
Net investment income (loss) (1.37%) (1.47%) (0.65%)
Commission Cost/Share $0.0097
Portfolio turnover rate [2] 56.2% 155.9% 103.6%
Aggressive Growth Portfolio
Per share data
Net asset value, beginning of period $16.66 $11.71 $9.89
Income (loss) from investment operations:
Net investment loss (0.24) (0.18) (0.02)
Net realized and unrealized gain 3.43 5.22 1.84
Total from investment operations 3.19 5.04 1.82
Less distributions to shareholders:
Net investment income 0.00 0.00 0.00
Net realized gains (1.06) (0.09) 0.00
Total distributions (1.06) (0.09) 0.00
Net asset value, end of period $18.79 $16.66 $11.71
Total return [1] 19.9% 43.3% 19.5%
Ratios & Supplemental Data
Net assets, end of period $3,420,490 $1,502,485 $276,272
Ratios to average net assets: [2]
Expenses net of waivers and reimbursements 2.00% 1.97% 1.86%
Expenses before waivers and reimbursements 2.77% 5.73% 16.15%
Net investment income (loss) (1.40%) (1.26%) (0.30%)
Commission Cost/Share $0.0135
Portfolio turnover rate [2] 138.9% 167.7% 139.9%
Social Responsibility Portfolio
Per share data
Net asset value, beginning of period $14.68 $11.61 $9.85
Income (loss) from investment operations:
Net investment income (loss) 0.03 (0.02) 0.07
Net realized and unrealized gain 2.31 3.11 1.70
Total from investment operations 2.34 3.09 1.77
Less distributions to shareholders:
Net investment income 0.00 (0.02) (0.01)
Net realized gains (0.81) 0.00 0.00
Total distributions (0.81) (0.02) (0.01)
Net asset value, end of period $16.21 $14.68 $11.61
Total return [1] 16.9% 26.6% 18.9%
Ratios & Supplemental Data
Net assets, end of period $637,929 $360,960 $64,421
Ratios to average net assets: [2]
Expenses net of waivers and reimbursements 1.50% 1.48% 1.46%
Expenses before waivers and reimbursements 5.81% 16.80% 72.83%
Net investment income (loss) 0.24% (0.17%) 0.90%
Commission Cost/Share $0.0090
Portfolio turnover rate [2] 35.5% 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
See accompanying notes to financial statements.
</TABLE>
<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 had three portfolios during
fiscal year 1997: 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 NASDAQ. 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 closing or bid 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, 1997, each portfolio had deferred organization costs in the
amount of $9,254 payable to Bridgeway Capital Management, Inc., a
shareholder.
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.
<PAGE>
BRIDGEWAY FUND, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
2. Significant Accounting Policies
Distributions to Shareholders, Continued
During the year ended June 30, 1997, the Ultra-Small Company and the
Aggressive Growth Portfolios did not pay sufficient dividends and
distributions from met investment income and from net capital gains
generated during the year ended June 30, 1996. The Ultra-Small Company and
the Aggressive Growth Portfolios intend to petition the Internal Revenue
Service for permission to make such deficient distributions during the year
ended June 30, 1998. Taxpayers would be taxed on these distributions in
the year received. Based upon management's assessment, the interest and
penalties related to these deficient distributions are expected to be
approximately $26,000. The Adviser has committed to pay the interest and
penalties and all other costs associated with resolving the deficiency for
the portfolios. No assurance can be given as to whether the Internal
Revenue Service will accept the petition.
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. Actual results could differ from
those estimates.
12b-1 Plan
The Fund acts as distributor of its shares pursuant to a 12b-1 plan 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."
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 may remain
so in the immediate future. Because commission cost per trade is
unacceptably high as a percentage of assets, the Adviser reimbursed this
portfolio for any commissions above one cent/share. The Adviser expects to
continue this practice until portfolio net assets reach at least $1
million.
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. The Social
Responsibility Portfolio purchased and sold one put during the fiscal year.
A summary of options purchased by the Aggressive Growth Portfolio follows:
<PAGE>
BRIDGEWAY FUND, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
3. Use of Derivative Instruments, Continued
Call Options Put Options
Shares
(in thousand) Cost # of Puts Cost
Options outstanding
6/30/96 20 $34,300 0 $0
Options purchased 108 $120,255 2 1,492
Options expired 0 $0 0 $0
Options exercised (5) ($5,766)
Options closed (99) ($104,335) (2) ($1,492)
Outstanding at 6/30/97 24 $44,454 0 $0
4. Management Contract:
The Fund has entered into a management contract with Bridgeway Capital
Management, Inc. (the Adviser"), 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.
The fee is adjusted quarterly for the Aggressive Growth and the Social
Responsibility Portfolios based upon performance. 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 over the trailing
five year period, 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% and a
maximum expense ratio of 2.0%.
5. Related Party Transactions:
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 is borne by the Adviser rather than the Fund. The other
officers are employees of the Adviser and the portion of their compensation
attributable to fund accounting, shareholder accounting and state
registration services is paid by the Fund and is included in the Accounting
fees and Registration fees expense categories of the financial statements.
The Adviser is committed to reimburse the Fund for any operating expenses
above 2.5% of net assets during the first three years of operations. In
addition, the Adviser 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. The
Adviser expects to continue this voluntary level of reimbursement, if
necessary, indefinitely.
<PAGE>
BRIDGEWAY FUND, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
5. Related Party Transactions, Continued
To achieve this expense level the Adviser has waived both the management
fees and accounting fees for the year ended June 30, 1997, for the Social
Responsibility Portfolio. For the Ultra-Small Company and Aggressive
Growth Portfolios, the Adviser has waived a portion of their management
fees.
6.Custodial Agreement:
The Fund has entered into a Custodial Agreement with Compass Bank (formerly
River Oaks Trust). As compensation for services rendered by the custodian,
each portfolio pays a fee, computed and paid quarterly based on the average
month end total assets of each portfolio for the quarter plus a fee per
transaction.
7.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:
Cost of Proceeds
Portfolio Purchases from Sales
Ultra-Small Company $25,936,876 $7,952,176
Aggressive Growth $4,408,732 $3,052,272
Social Responsibility $215,886 $127,859
8.Subsequent Event:
On July 20, 1997, the Fund added two new portfolios: the Ultra-Small Index
Portfolio and the Ultra-Large 35 Index Portfolio. 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. The
Ultra-Large 35 Index Portfolio seeks to meet the total return of the
Bridgeway Ultra-Large 35 Index while minimizing the distribution of capital
gains and minimizing costs.
<PAGE>
August 25, 1997
Bridgeway Fund, Inc.
5650 Kirby Drive, Suite 141 RE: 3372416
Houston, Texas, 77005 811-8200
Ladies and Gentlemen,
This opinion is being delivered to you in connection with the above
registration statement on Form N-1A under the Securities Act of 1933, as
amended, under which you have registered an indefinite number of shares of
beneficial interest, par value $.001 per share, pursuant to Rule 24 f-2 under
the Investment Company Act of 1940, as amended. In particular, this opinion
related to the notice which you are filing under Rule 24f-2 (the "Rule 24f-2
Notice") which makes definite in number of additional 1,291,434.724 shares of
beneficial interest, par value $.001 per share, of the Corporation, which you
sold in the year ended June 30, 1997 (the "shares").
We have made such inquiry of your officers, directors and auditors and have
examined such corporate documents, records, and certificates and other
documents necessary for the purposes of this opinion including the Maryland
General Corporation Law. In rendering this opinion we have relied, with your
approval as to all questions of fact material to this opinion, upon
certificates of public officials and of your officers, and have assumed, with
your approval, that the signatures on all documents examined by us are
genuine, which facts we have not independently verified. I am a member of the
bar of the State of New York, and have not consulted Maryland counsel in
connection with this opinion.
Based upon and subject to the foregoing, we are of the opinion that the shares
were legally and validly issues, fully paid and nonassessable.
We hereby consent to your attaching this opinion to the Rule 24f-2 Notice and
making it a part thereof and including a copy of it in the forthcoming filing
of the Fund's Post Effective Amendment No. 6. In giving such consent, we do
not admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
Sincerely Yours
James H. Ellis
JHE/ms
Consent of Independent Accountants
To the Board of Directors
of Bridgeway Fund, Inc.:
We consent to the inclusion in Post-Effective Amendment No. 6 to the
Registration Statement of Bridgeway Fund, Inc. on Form N-1A (File No.
33-72416) of our report dated August 29, 1997 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 year
ended June 30, 1997 which is included in the Post-Effective Amendment
to the Registration Statement. We also consent to the reference to
our firm under the captions "General Information" and "Auditors" in
the Prospectus, Financial Highlights and the Statement of Additional
Information.
Houston, Texas
August 29, 1997
