<PAGE>
January 27, 1997
Dear Fellow Ultra-Small Company Shareholder,
The Ultra-Small Company Portfolio gained 7.3% in the last quarter, significantly
beating both of our performance benchmarks. I am very pleased with the quarter,
the calendar year, and the life to date returns. We have beaten our market
benchmark in six of the last eight quarters.
The Ultra-Small Company Portfolio rose 29.7% in the calendar year 1996. It
ranked in the 13th percentile, or 52nd of 408 small company funds according to
Morningstar. Following a very good year in 1995, our fund ranks in the 7th
percentile of small company funds for the last two years. Since we would expect
our fund to "shine" more in years where small companies do better than large
ones (which didn't happen in 1996; see below), I am particularly pleased. Your
Portfolio outperformed the Russell 2000 Index by more than 10% in 1996.
We received very favorable comments last quarter on our new "translation"
paragraph which precedes longer sections. If you're a new shareholder, you'll
get the idea.
Performance Summary
- -------------------
Translation: We had a wonderful year, and beat both our performance benchmarks
in each cumulative reported period.
The following table presents SEC standardized performance for the September
quarter, one year, and life-to-date*:
<TABLE>
<CAPTION>
Sep. Qtr. 1 Year Life-to-Date
9/30/96 12/31/95 8/5/94 to
to 12/31/96 to 12/31/96 12/31/96 **
<S> <C> <C> <C>
Ultra-Small Company Portfolio 7.3% 29.7% 26.6%
Russell 2000 (small growth stocks)* 5.2% 16.5% 19.7%
Lipper Small Co. Growth Funds* 2.4% 19.5% 24.1%
</TABLE>
*The Russell 2000 and S&P 500 are unmanaged indexes of large and small stocks,
respectively, with dividends reinvested. The Lipper Small Company Growth Funds
reflect the aggregate record of smaller company 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--A Texas Oilman, or What?
- -------------------------------------------------------------
Translation: We returned to our market-beating ways in the December quarter.
Hooray! Oil stocks helped the most.
Seven of our stocks went up by at least 50% during the quarter, with nary a one
declining by this amount. That's a nice combination. The +50% list looks
impressive:
<TABLE>
<CAPTION>
Company Total Return Industry
------- ------------ --------
<S> <C> <C>
UTI Energy 125% Oil & Gas
Maynard Oil Company 95% Oil & Gas
Clayton Williams Energy 72% Oil & Gas
E R O, Inc. 71% Leisure-Amusement
Wandel & Goltermann 56% Electronics/Electric
Fountain Powerboat 55% Leisure-Amusement
American Woodmark Corporation 51% Building
</TABLE>
As you can see from the top three performing stocks, the oil and gas industry
gave a significant boost to our portfolio in the quarter, and also for the
calendar year as a whole. This warms the heart of almost anyone from Texas.
However, if you're in Michigan sitting in front of your furnace thinking about
your next gas or oil bill, you may not be so happy. At least you can take
solace in the fact that higher energy prices boosted the return of your
Portfolio.
Significantly higher energy prices helped all the stocks in our oil and gas
group. Well-timed acquisitions also helped both UTI Energy and Maynard Oil in
the list above. These factors produced stronger company profits and cash flow.
UTI provides contract drilling to onshore exploration and producing firms.
Maynard Oil and Clayton Williams Energy have both exploration and production in
oil and gas primarily in Texas. If you're wondering whether Bridgeway
specializes in the energy sector like some Texas investment advisory firms, the
answer is "no."
My father was in the oil industry, but I don't really know much more about oil
than how to fill up my Honda. I just follow my stock picking models. Also, I
like the diversification which these stocks represent in our portfolio. If
energy prices continue to rise, our transportation companies won't do as well,
but the oil companies will. So I like to own some of the best of both.
Short-term Performance
- ----------------------
Translation: Yes, we had a very good year, but you really have to look at the
long-term to get an idea of our performance. In my opinion, three years is the
minimum period of time to pass judgment on performance. The Portfolio will be 3
next August. (On the other hand, I understand some people invest in a small
company fund so they will have something to brag about to their buddies in the
locker room if the stock market goes up. If this is your situation, just tell
them a stock in your fund was up 125% last quarter, and 13 of them at least
doubled in the last (fiscal) year. Of course, this isn't a very full picture,
so you might just suggest they call for a prospectus and this letter.)
Last week a reporter called to interview me concerning excellent recent
performance for Bridgeway Aggressive Growth Portfolio. According to this
reporter, the portfolio was the highest performing non-sector fund for the week!
That's right, a week. Don't get me wrong, I'd rather be at the top of the heap
at the end of a week than the bottom, but so what? I believe the smallest
significant period of time to measure investment performance is three years.
Our fund won't even be that old until August of this year. If we're way up the
charts at that point, then we'll really have something to celebrate. If I
didn't have a legal and operational responsibility to review our holdings on a
daily basis, I wouldn't even look at whether we were up or down for the day,
week, or month. This is a long-term investment, right? Nevertheless, as you
know from my previous letters, the long-term is made up of smaller segments and
I am committed to reporting on our performance quarterly.
Worst Mistake
- -------------
Our poorest performing stock this quarter was General Automation, which provides
complete computer hardware and software "business solutions." After a money
losing year in 1995, due to declining revenues and problems absorbing an
acquisition, the company seemed to have turned the corner in 1996. That is,
until the September quarter financials showed a significant slowing of sales
growth and only a penny per share of profit. Shareholders who remembered 1995
were probably spooked by this, sending the stock price down to unrealistically
low levels, according to our model. We're holding our position. The timing of
our purchase was clearly a mistake, however. The stock declined 40% in the
quarter.
Stock Market Performance: Continuing Recent Large Company Dominance
- --------------------------------------------------------------------
Translation: Investors continue to flock to the "safety" of larger, well known
stocks. This puts your portfolio at a disadvantage, since many small stocks are
being overlooked. Our models' stock picking success has overcome this
disadvantage so far, however.
As we highlighted in our last shareholder letter, large companies have dominated
smaller ones in the stock market for the period since our inception in August,
1994. The figure below shows that on a cumulative basis, large companies (as
represented by the S&P 500) have outperformed small ones (as represented by the
Russell 2000) by almost 12% since inception. This runs counter to the long-term
historical trend and puts our Portfolio at a disadvantage, since it invests in
some of the smallest publicly held companies. Our models are currently finding
more undervalued companies in the smaller size range, and this could bode well
for ultra-small company stocks in the future. Of course, the "future" could be
several years away, particularly if we have a major general market decline.
graphie
Largest Positions
- -----------------
<TABLE>
<CAPTION>
The following were our largest ten portfolio positions on December 31:
% Net
Company Industry Assets
------- -------- ------
<S> <C> <C>
Clayton Williams Energy Oil & Gas 3.2%
Continental Homes Holdings Building 3.0%
Engineered Support Systems Electronics/Electric 2.6%
Wandel & Goltermann Technology Electronics/Electric 2.3%
American Oilfied Divers Oil & Gas 2.3%
McFarland Energy, Inc. Oil & Gas 2.2%
Comstock Resources, Inc. Oil & Gas 1.9%
Nutrition For Life International, Inc. Retail Stores 1.9%
Winsloew Furniture Home Furnishings 1.9%
American Eco Corporation Pollution Control 1.9%
-----
Total 23.2%
</TABLE>
Due primarily to appreciation, four of our ten largest positions are in the oil
and gas industry, which in turn makes up 14% of the portfolio. No position
makes up more than 3.2% of portfolio net assets, however. The oil and gas
industry is now our largest industry grouping, significantly more than the 5%
represented in the average small company fund, but still quite a reasonable
level of concentration. The second largest industry represented in the
portfolio is retail stores, with 8% of portfolio net assets. The Portfolio is
well diversified by company, industry, and region of the country. It is
extremely concentrated as to company size--minuscule.
The People Side of This Business
- --------------------------------
Bridgeway is not just an address. It's not even just money and stock
certificates in a bank. Bridgeway is people. First, it's you, our shareholder.
Obviously, without you, I'm out of a job. I pray that I never, ever take for
granted the trust that you have shown by investing in our young fund. I want to
continue to work to earn that trust over the next few years and decades.
Other people help make up Bridgeway. Karen Gerstner and Miles Harper are
looking out specifically for your interests on our board of directors. They
consider seriously each of the decisions required by federal and state laws and
hold me accountable to the highest standards of integrity. Sherry Norman at our
custodian bank helps ensure your money is secure. I can't just cash your check
and leave town. Patty Avila-Eady and Chris Komarek audit the Portfolio to help
make sure that your purchase value and redemption value are accurate now and in
the future. Steve Barnhill helped conceive of the name "Bridgeway" and directed
the design process that resulted in our "logo" and prospectus layout. John
Harris programmed our own accounting system, set up our computer network, and
helped me with research on the ultra-small company asset class. Jim Ellis
helped structure the feasibility study for the Fund. With advanced degrees in
both law and business and decades of securities law experience, he also serves
as the Fund's legal counsel. My wife, mother, brother, sister, and other family
and friends have lent money, time, and moral support. (This space wouldn't do
justice to the support and sacrifice they have shown.) Almost all of these
people have given more than they have taken. It is humbling to be on the
receiving end of such good will.
Finally, you should know about the other people I work with here on a daily
basis. Joanna Schima currently does almost anything in the area of
administration. She was manager of communications at a larger fund complex,
then co-owner of a small business before coming to Bridgeway. She does
everything from payroll and benefits, to hiring and training, to communications
hardware, to insurance, to documenting procedures, to state registration and
compliance. Hers is the friendly southern female voice you may hear on our
answering machine. When she says, "Reality check time," everyone stops what
they're doing and listens. We don't really have titles at Bridgeway, but if we
did, she says hers would be "Queen of Quite a Lot." It's awesome what she can
accomplish in a day. It's just as awesome to watch the skill, spirit, and love
she puts into being a parent. Glen Feagins worked as an auditor with a large
accounting firm and later as the chief financial officer of a medium size fund
company before coming to Bridgeway. He supervises all our "back room
operations," which means pricing our portfolios and keeping official shareholder
records. He is our primary contact with our custodian, bank, brokers, and
auditors. He is also excellent with computers and maintains our software and
hardware--a very important task for a company that leans heavily on technology.
Glen is a bit older and wiser than the rest of us (his hair is turning a
distinguished gray; mine is just falling out). He is also quieter than the rest
of us, but has a warm personality and strong, but subtle sense of humor. David
Arnold is one of the people we hired on a temporary basis when we received
10,000+ phone calls last summer from our Mutual Funds Magazine article. He's
another one of these "can do" people who showed up the rest of us by getting the
highest Bridgeway grade on his securities examinations. He answers the lions'
share of our phone calls, sends out our literature, assists shareholders with
almost any Fund question under the sun, and does about whatever else needs to
get done. Lest you think we're spread a bit thin, we are adding one new
employee this month.
I want you to picture for a minute working for a very small organization. You
hear you are getting some significant publicity. You estimate demand based on
other organizations' experience with similar publicity, but three days into
publication, you realize you underestimated demand by a factor of 5. Uh oh.
The number of your clients doubles in three months. You promised your family a
2 week vacation and your name is mud if you cancel it. You leave anyway, but
work one day a week by fax/laptop. Three more months pass and the number of
clients doubles again. This was my situation. I can't tell you how proud I am
of the people I work with for bringing Bridgeway through this period with
remarkably few glitches. These people are dynamite. We're a stronger
organization now, better equipped to service our current shareholders and ready
for the next time we get such positive publicity.
If there is one thing I am more proud of than our investment performance, it is
the people who make up Bridgeway.
Portfolio Statistics
- --------------------
Translation: Your portfolio invests in very tiny companies that are growing a
bit faster but are priced significantly cheaper than the overall market. This
strategy should give us a higher long-term return (so far so good, but I can't
promise about the future), without all the additional expected downside risk
(this part of the strategy didn't work so well last summer).
Bridgeway Ultra-Small Company Portfolio statistics are available in Value Line's
Mutual Fund Survey and Morningstar's electronic database. Since these are not
readily available at most libraries, however, I thought I would report a few
common ones from Morningstar's electronic database. The first time I saw
the Portfolio listed as having a value orientation, rather than a growth
orientation, I was shocked. I thought I was
mostly investing in growth companies. This is true, but my models are also
pretty stingy in what they will pay. This is part of our
strategy of strong growth while trying to dampen some of the inherent "downside
risk." The returns above indicate we have been successful in obtaining higher
returns so far. However, our strategy to dampen downside risk was only mildly
effective last summer. From the peak on May 23 to the bottom on July 24, the
Portfolio declined 19.7%. Details of this decline were presented in my last
quarterly letter. This was more than the market overall, but less than the
average of those aggressively managed funds which had risen as much as ours from
February through May. Now for the numbers:
<TABLE>
<CAPTION>
Statistic Ultra-Small Co. S&P 500 Index Avg. Small Company Fund
- ------------------------ --------------- ------------- -----------------------
<S> <C> <C> <C>
Price to Earnings 17.2 23.5 28.7
Price to Book 2.8 4.9 4.4
Price to Cash Flow 14.3 13.6 18.1
5 Year Growth Rate 18.6% 17.8% 26.0%
Median Market Cap. ($Mi) 47 24,598 702
Turnover 156% 4% 87%
</TABLE>
Our portfolio has lower price to earnings and price to book ratios, indicating
this is a "value" investment style. Our five year growth rate is higher than
the stock market as measured by the S&P 500, but lower than the aggressive
growth fund average, according to Morningstar. Actually, this growth rate is a
consensus of analysts, and I believe the actual portfolio number is higher.
Some of the companies we own don't have any analysts following them. Also, it
would make sense to me that my models are picking stocks for which analysts are
underestimating the true growth rate. Our portfolio turnover last year was
significantly higher than the peer group average. The turnover of the last six
months was 73%. I would expect the future turnover to be higher than the last
six months, but lower than last fiscal year. The one statistic which is
dramatically different from that of the peer group is market capitalization.
The companies in your portfolio are about one fifteenth the size of the average
in Morningstar's peer group.
How Small is Small Enough?
- --------------------------
Translation: When it comes to small cap investing, an important question is,
"How small is small enough?" Many "small-cap" mutual funds invest in mid-size
companies. We invest in companies which are truly tiny - those the size of the
smallest 10% of companies on the New York Stock Exchange. The actual measure of
what constitutes an ultra-small company tends to grow significantly over time
with inflation and stock market prices. But we are very serious about our
ultra-small charter. We believe we have a workable plan to stay invested in
truly tiny companies.
A number of studies since 1981 have documented the fact that smaller companies
have significantly outperformed larger companies over longer time periods (but
in only about 55% of all individual years). Recently, there have been various
reports that in order to capture the "small firm effect" you must be invested in
companies below $100 million, $50 million, or $25 million large as measured by
market capitalization. Market capitalization is simply a company's stock price
multiplied by the
number of shares outstanding. You may be wondering why the academics chose this
strange measure of size. Basically, it was the "most statistically significant"
of the easily available measures. We have lots of stock market data on prices
and number of shares, but not much historical information on, say, number of
employees.
A good question to ask is, "Which is the proper size hurdle to capture the
'small firm effect' and where does our Portfolio stand relative to this
benchmark?" This is a very important question, but the answer is somewhat
tedious. So if you really want to know the details and you're not deadly bored
by this letter so far, hang on . . .
"Most small-capitalization strategies owe their superior returns to micro-cap
stocks with market capitalizations below $25 million. These stocks are too
small for virtually any investor to buy." This conclusion was proposed by Jim
O'Shaughnessy in his recent book What Works on Wall Street. This same research
has been reported by various newspapers and magazines, including a September,
1996 article in Worth Magazine. Jim didn't plug our mutual fund in his book,
but I will plug his book in our shareholder letter. I think the overall quality
of his research is good. He does some interesting and important original
research and also does a particularly commendable job of making some arcane
academic research understandable by the average investor. I like his book; I
just happen to disagree with one of his conclusions. Let's take a closer look.
First, the research starts by dividing up the universe of all stocks into two
groups, those above and below $150 million. This figure is deflated to account
for inflation. The large stock group significantly outperforms small ones. No
problem here.
The second step is where I have a significant problem. Most previous studies
have divided up the total stock universe into size groupings and rebalanced at
least each year. This is the best way to adjust for the effects of inflation,
in my opinion. Jim's research, however, freezes a definition of micro-cap
stocks at $25 million through history since 1951. His justification: it
conforms to the practices of money managers and investors. Again, to the best
of my knowledge this is true, with the exception of two funds: Bridgeway Ultra-
Small Company Portfolio (we invest in companies the size of the smallest 10% on
the New York Stock Exchange) and one other (which invests in companies the size
of the smallest 20% of companies on the New York Stock Exchange). I would name
this other fund, but there are some legal problems with referring to other funds
in our own fund literature. So Jim's methodology may be appropriate for the
vast majority of small-cap mutual funds; it just doesn't happen to apply to this
portfolio. I don't have access to the Compustat database of 7700 stocks in
Jim's research, but let me indicate why this constraint would be unfair as
applied to our portfolio. In 1951, more than half of the stocks on the New York
Stock Exchange were smaller than $25 million. More than 70% were smaller than
$50 million. The smallest 10% of New York Stock Exchange Stocks were $25
million in 1971 and again in 1979. So the early years of this analysis includes
the lions share of all stocks available. It really only measures the effects of
smaller stocks in the later years. The conclusion of this research may still be
valid as applied to most small cap funds which start out in the size we would
consider mid-cap stocks and eventually grow to the size of rather large mid-cap
stocks. With this critique in mind, let's review other conclusions of this
research:
1. Smaller companies outperform large ones. Absolutely.
2. It's virtually impossible to buy the stocks that account for the performance
advantage of small capitalization strategies. I agree. Well, it depends on
what you mean by virtually. You can't get it at most mutual fund complexes, but
try 1-800-661-3550. Joanna thinks that filling out our application form is not
virtually impossible, and David is willing to help anyone who needs it.
3. On September 30, 1995, the median market capitalization of the 350 mutual
funds in Morningstar's all-equity, small-cap category was $632 million! We
agree, this is too large to capture the exciting part of the performance curve
for small stock investing.
4. Only eight funds (in Morningstar's database) had median market
capitalizations below $100 million, and of these, only one managed more than $50
million. True, there is very little mutual fund money invested in truly tiny
companies. But one of these eight was Bridgeway, and we have a long term
strategy to stay invested in companies the size of the smallest 10% of the New
York Stock Exchange. We have a commitment to tiny companies.
The research we base our Portfolio on uses data that goes back a full 71 years
now. According to the research, ultra-small companies as an asset class have
outperformed large companies by over six percent annually. This doesn't happen
every year. In fact, the reverse can be true in any one year as we saw in 1995
and 1996. Companies this size are riskier in the short-term, which accounts for
at least a portion of their historical higher returns.
So, how small is small enough? I don't think you can pick a number and stick
with it forever. An ultra-small company in 1926 had a market capitalization of
only $2 million. At the end of 1995, the number was $86 million. The market
capitalization of your portfolio will go up in years the stock market goes up.
But we will remain invested in ultra-small companies.
Special Meeting of Shareholders
- -------------------------------
Translation: We reported the results of our shareholder votes in our last
quarterly letter. We have to do it again here in our semi-annual report to
fulfill legal requirements. I have always been skeptical of changes to the
original prospectus, and you may be too. If you have any questions or concerns
about these, please give us a call at 800-661-3550, and we will be happy to
review why we think each of these is in the shareholders' interests.
On October 15, 1996, shareholders of record on July 31 considered a proposal to
adopt a 12b-1 Plan to become its own distributor at no cost to the Fund. This
reduces some expenses for the Advisor and frees up time better spent on other
Fund affairs. This proposal passed with 286,837 shares voting for, 27,951
against, and 6,050 abstaining. I want to emphasize that there are NO
distribution costs to be borne by the Fund from this plan. The adviser,
Bridgeway Capital Management, Inc., has borne and will continue to bear all
costs of distribution. The Fund remains a fully no-load fund.
Shareholders also approved a proposal to close the Portfolio to new investors at
$27.5 million and increase the management fee (only for the period net assets
are between $27.5 and $55 million) subject to a maximum expense ratio of 2.0%
(the current rate). 286,447 shares were in favor, 33,892 against, and 722
abstained.
The proposal to allow investors to purchase an amount equal to their prior net
contributions for an extended period through at least December, 1997 passed
223,976 in favor, 16,198 against, and 885 abstaining.
The proposal permitting directors and employees of the Fund and Adviser to
purchase unsubscribed or redeemed shares beyond the closing date passed 215,347
in favor, 22,159 against and 3,554 abstaining.
New Shareholder Account Numbers
- -------------------------------
Please notice a new account number on your enclosed year end statement. Several
shareholders requested we not use the social security number, as this could
compromise account security. We agreed it was a good idea.
Short-term Performance--Again
- -----------------------------
Translation: We had a great year in 1996. However, we hope you invested in
this Portfolio because you believe in Bridgeway and the ultra-small strategy of
this Portfolio. The record on chasing last year's "hot funds," is mixed, at
best.
Calendar year 1996 was a great year for your Portfolio. Our goal, however, is
not necessarily to be the #1 fund in a given year, but to capture the long-term
dominance demonstrated by very small companies over longer historical periods.
Also, a mutual fund that can stay in the top fifth of funds for a number of
years running, will find itself in the top 5% long-term. That's where I'd like
to be. Too many mutual funds have one dynamite year, only to fall to the bottom
of the pack the next. Of the top ten performing domestic equity funds in 1995,
only one made it into the top half in 1996. Three actually registered in the
bottom two percent. These are truly remarkable statistics which indicate the
perils of chasing short-term performance.
Conclusion
- ----------
As always, I appreciate your feedback and suggestions. We are always looking
for ways to improve our service. While I can't make representations about
future performance, I am working hard to make ours a mutually rewarding long-
term relationship.
Sincerely,
John Montgomery
<PAGE>
January 27, 1997
Dear Fellow Aggressive Growth Shareholder,
Performance for the quarter ending December 31, 1996 was positive, up
2.1%, but lagging our benchmark indicators. This broke a string of
six quarters of consecutive market beating performance. That's the
bad news. The good news is . . .
On the strength of the first three quarters of calendar year 1996,
your fund was #1 out of 105 aggressive growth funds on a load-adjusted
basis, according to Morningstar. For the calendar year, the Portfolio
was up 32.2%, handily beating all our performance benchmarks.
We received very positive comments last quarter from our new
"translation" paragraph which precedes longer sections. If you're a
newer shareholder, you'll get the idea.
Performance Summary
- -------------------
The following table presents SEC standardized performance for the
December quarter, one year, and life-to-date*:
<TABLE>
<CAPTION>
Sep. Qtr. 1 Year Life-to-Date
9/30/96 12/31/95 8/5/94 to
to 12/31/96 to 12/31/96 12/31/96 **
<S> <C> <C> <C>
Aggressive Growth Portfolio 2.1% 32.2% 28.5%
S&P 500 Index (large stocks)* 8.3% 26.0% 25.3%
Russell 2000 (small growth stocks)* 5.2% 16.5% 19.7%
Lipper Capital Appreciation Funds* 2.4% 16.4% 20.5%
</TABLE>
*The Russell 2000 and S&P 500 are unmanaged indexes of large and small
stocks, respectively, with dividends reinvested. The Lipper Capital
Appreciation Funds reflect the aggregate record of more aggressive
domestic growth mutual funds as reported by Lipper Analytical
Services, Inc. Past performance does not guarantee future returns.
** Life-to-date returns are annualized; quarterly returns are not
annualized.
Short-term Performance
- ----------------------
Translation: Yes, we had a very good year, but you really have to
look at the long-term to get an idea of our performance. I believe
the shortest period of time to pass judgment is three years. The
Portfolio will be 3 next August. (One the other hand, I understand
some people invest in an aggressive growth fund so they will have
something to brag about with their buddies in the locker room if the
stock market goes up. If this is your situation; just tell them you
invested in the #1 aggressive growth fund last year and forget about
the long term.)
Last week a reporter called to interview me concerning our Portfolio's
excellent recent performance. According to this reporter, Bridgeway
Aggressive Growth Portfolio was the highest performing non-sector fund
for the week! That's right, a week. Don't get me wrong, I'd rather
be at the top of the heap at the end of a week than the bottom, but so
what? I believe the smallest significant period of time to measure
investment performance is three years. Our fund won't even be that
old until August of this year. If we're way up the charts at that
point, then we'll really have something to celebrate. If I didn't
have a legal and operational responsibility to review our holdings on
a daily basis, I wouldn't even look at whether we were up or down in a
day, week, or month. This is a long-term investment, right?
Nevertheless, as you know from my previous letters, the long-term is
made up of smaller segments and I am committed to reporting on our
performance quarterly.
Detailed Explanation of Performance
- -----------------------------------
Translation: Two of our stocks did poorly (a computer maker and a
computer retailer), but others did very well. There were no other new
trends during the quarter. Oil stocks continued to do very well.
One of our core holdings, CompUSA, appears to be the bellwether for
the overall portfolio. Since we added it as a core position in the
fall of 1995, CompUSA rose 196% through the end of September. This
hasn't been without some significant "corrections" along the way,
however. The December quarter was one of these. The stock of this
computer retailer declined 23.5% in the quarter, subtracting about 1
1/2% from the overall quarterly performance. What is most amazing is
the reason behind this significant drop: sales were flat to declining
for a few weeks in December. How can the total worth of a company
vary so much with just a few weeks of sales? Our models say the
company is severely undervalued.
One of our other core holdings that added so much to the portfolio
last year also had a bad quarter. Sun Microsystems, a maker of
computer workstations and Internet software, declined 17% in the
quarter. No changes in fundamentals, just stock price.
Two other major holdings helped make up the difference during the
quarter, however. TJX Companies rose 32% and Helmerich & Payne rose
19%. Oh, the blessings of diversification. . .
The Oil and Gas Industry now makes up 12.9% of the total portfolio,
our second largest industry concentration. This sector has been
performing particularly well in the quarter and the year. In addition
to Helmerich & Payne, Comstock Resources was up 17% and McFarland
Energy was up 22%.
Worst Mistake
- -------------
Translation: I can't think of one this quarter. See the last
shareholder letter for one that's too fresh to forget, however.
Even though we didn't outperform the market, I can't point to any bad
mistakes in the quarter. While CompUSA and Sun Microsystems were a
significant drag on performance, I like them even more now than at the
beginning of the quarter. This is when I usually buy more.
Unfortunately, my models won't let me add more now. Rats! Sometimes
discipline is hard, but I stick by the models. The worst mistake of
the whole year was buying One Price Clothing, highlighted in my last
report. Oops! I almost forgot. Read my March quarter letter if you
want an example of what can really go wrong.
Stock Market Performance: Continuing Recent Large Company Dominance
- --------------------------------------------------------------------
As we highlighted in our last shareholder letter, large companies have
dominated smaller ones in the stock market for the period since our
inception in August, 1994. The figure below shows that on a
cumulative basis, large companies have outperformed small ones by
almost 12% since inception. This puts our Portfolio at a
disadvantage, since it invests in all size companies, both large and
small. Our models are currently finding more undervalued companies in
the mid and small company range. Of course, small here is a relative
term. All of the companies on the top holdings list above are larger
than those I pick for Bridgeway's Ultra-Small Company Portfolio. I
look forward to the next period when the prevailing historical trend
of small company outperformance returns.
Largest Positions
- -----------------
Translation: Your portfolio manager invests more money in a fewer
number of companies than some other mutual funds (this is called
"concentration"), but works very hard on overall diversification, that
is, not loading up on any one industry or region of the country. We
try hard not to put all our eggs in one basket.
<TABLE>
<CAPTION>
The following were our largest ten portfolio positions on December 31:
% Net
Company Industry Assets
------- -------- ------
<S> <C> <C>
Helmerich Payne Oil & Gas 8.0%
TJX Companies, Inc. Retail Stores 7.9%
Sun Microsystems, Inc. Data Processing Hardware 5.2%
Coachman Industries Automobiles, Motor Homes 5.1%
CompUSA, Inc. Retail Stores 5.0%
Oregon Metallurgical Corporation Metal / Other fabricating 4.2%
Schult Homes Corp. Building 3.1%
Comstock Resources, Inc. Oil & Gas 2.8%
Mail Well, Inc. Office Equipment 2.7%
Curative Health Health Care Facilities 2.4%
-----
Total 46.4%
</TABLE>
While we have a few concentrated positions, this list indicates the
breadth of our diversification. The attached schedule of investments
gives a full listing for December 31. Retail stores are our largest
industry holding, 17.3% of the Portfolio. Oil and gas is next at
12.9%, then data processing hardware at 10.5%. You will notice a cash
holding of 6.9%. This cash is not awaiting investment or due to
recent cash inflows. Rather, it offsets the leverage associated with
options (which represent 1.3% of the net assets) and high beta stocks
(those which tend to rise and fall more than the market as a whole).
One Portfolio investment objective is to match the risk
characteristics of the stock market (as represented by the S&P 500
Index) over longer time periods (at least three years). We make use
of cash and leverage (borrowing and options) to control this stock
market risk.
Portfolio Statistics
- --------------------
Translation: Your portfolio invests in very tiny companies that are
growing a bit faster but are priced significantly cheaper than the
overall market. Hopefully, this strategy will give us a higher return
(so far so good), without the additional expected downside risk (this
part of the strategy didn't work so well last summer).
Since Bridgeway Aggressive Growth Portfolio statistics are not readily
available at your library, I thought I would report a few common ones
from Morningstar's electronic database. The first time I saw the
Portfolio listed as having a value, rather than a growth orientation,
I was shocked. I thought I was mostly investing in growth companies.
This is true, but my models are also pretty stingy in what they will
pay. This is part of our strategy of strong growth while trying to
dampen some of the inherent "downside risk." The returns above
indicate we have been successful in obtaining higher returns so far.
However, our strategy to dampen downside risk was only mildly
effective last summer. From the peak on May 23 to the bottom on July
24, the Portfolio declined 19.7%. This was more than the market
overall, but less than the average of those aggressively managed funds
which had risen as much as ours from February through May. Now for
the numbers:
<TABLE>
<CAPTION>
Statistic Aggressive S&P 500 Index Avg. Aggr.
Growth Growth Fund
- ------------------------ ---------- ------------- -----------
<S> <C> <C> <C>
Price to Earnings 19.0 23.5 28.7
Price to Book 3.7 4.9 4.4
Price to Cash Flow 10.0 13.6 18.1
5 Year Growth Rate 18.5% 17.8% 26.2%
Median Market Cap. ($Mi) 519 24,598 700
Turnover 168% 4% 87%
</TABLE>
Our portfolio has lower price to earnings and price to book ratios,
indicating this is a "value" investment style. Our five year growth
rate is higher than the stock market as measured by the S&P 500, but
lower than the aggressive growth fund average, according to
Morningstar. Actually, this growth rate is a consensus of analysts,
and I believe the actual portfolio number is higher. It would make
sense to me that my models are picking stocks for which analysts are
underestimating the true growth rate. Our portfolio turnover last
year was about twice the peer group average. The turnover of the last
six months was 81%, but the higher number may be more representative
of the long term outlook.
The People Side of This Business
- --------------------------------
Bridgeway is not just an address. It's not even just money and stock
certificates in a bank. Bridgeway is people. First, its you, our
shareholder. Obviously, without you, I'm out of a job. I pray that I
never, ever take for granted the trust that you have shown by
investing in our young fund. I want to continue to work to earn that
trust over the next few years and decades.
Other people help make up Bridgeway. Karen Gerstner and Miles Harper
are looking out specifically for your interests on our board of
directors. They consider seriously each of the decisions required by
federal and state laws and hold me accountable to the highest
standards of integrity. Sherry Norman at our custodian bank helps
ensure your money is secure. I can't just cash your check and leave
town. Patty Avila-Eady and Chris Komarek audit the Portfolio to help
make sure that your purchase value and redemption value are accurate
now and in the future. Steve Barnhill helped conceive of the name
Bridgeway and directed the design process that resulted in our "logo"
and prospectus layout. John Harris programmed our own accounting
system, set up our computer network, and helped me with research on
the ultra-small company asset class. Jim Ellis helped structure the
feasibility study for the Fund. With advanced degrees in both law and
business and decades of securities law experience, he also serves as
the Fund's legal counsel. My wife, mother, brother, sister, and other
family and friends have lent money, time, and moral support. (This
space wouldn't do justice to the support and sacrifice they have
shown.) Almost all of these people have given more than they have
taken. It is humbling to be on the receiving end of such good will.
Finally, you should know about the other people I work with here on a
daily basis. Joanna Schima currently does almost anything in the area
of administration. She was manager of communications at a larger fund
complex, then co-owner of a small business before coming to Bridgeway.
She does everything from payroll and benefits, to hiring and training,
to communications hardware, to insurance, to documenting procedures,
to state registration and compliance. Hers is the friendly southern
female voice you may hear on our answering machine. When she says,
"Reality check time," everyone stops what they're doing and listens.
We don't really have titles at Bridgeway, but if we did, she says hers
would be "Queen of Quite a Lot." It's awesome what she can accomplish
in a day. It's just as awesome to watch the skill, spirit, and love
she puts into being a parent. Glen Feagins worked as an auditor with
a large accounting firm and later as the chief financial officer of a
medium size fund company before coming to Bridgeway. He supervises
all our "back room operations," which means pricing our portfolios and
keeping official shareholder records. He is our primary contact with
our custodian, bank, brokers, and auditors. He is also excellent with
computers and maintains our software and hardware--a very important
task for a company that leans heavily on technology. Glen is a bit
older and wiser than the rest of us (his hair is turning a
distinguished gray; mine is just falling out). He is also quieter
than the rest of us, but has a warm personality and strong, but subtle
sense of humor. David Arnold is one of the people we hired on a
temporary basis when we received 10,000+ phone calls last summer from
our Mutual Funds Magazine article on the Ultra-Small Company
Portfolio. He's another one of these "can do" people who showed up
the rest of us by getting the highest Bridgeway grade on his
securities examinations. He answers the lions' share of our phone
calls, sends out our literature, assists shareholders with almost any
Fund question under the sun, and does about whatever else needs to get
done. Lest you think we're spread a bit thin, we are adding one new
employee this month.
I want you to picture for a minute working for a very small
organization. You hear you are getting some significant publicity.
You estimate demand based on other organizations' experience with
similar publicity, but three days into publication, you realize you
underestimated demand by a factor of 5. Uh, oh. The number of your
clients doubles in three months. You promised your family a 2 week
vacation and your name is mud if you cancel it. You leave anyway, but
work one day a week by fax/laptop. Three more months pass and the
number of clients doubles again. This was my situation. I can't tell
you how proud I am of the people I work with for bringing Bridgeway
through this period with remarkably few glitches. These people are
dynamite. We're a stronger organization now, better equipped to
service our current shareholders and ready for the next time we get
such positive publicity.
If there is one thing I am more proud of than our investment
performance, it is the people who make up Bridgeway.
Special Meeting of Shareholders
- -------------------------------
Translation: Shareholders voted to make the Fund the legal
distributor (the organization that mails out fund literature) rather
than the advisory firm (Bridgeway Capital Management, Inc.). Since
this was done at NO cost to the Fund, this was probably a "non-event"
for shareholders. This reduces some expenses for the Advisor and
frees up time better spent on other Fund affairs. Shareholders also
voted to reduce some of the paperwork associated with calculating
performance fees.
On October 15, 1996, shareholders of record on July 31 considered a
proposal to approve calculating the performance adjustment fee rate
quarterly instead of monthly and to correct the ending date of the
first five year period to September 30, 1999. This proposal passed,
with 87,861.488 shares voting in favor, 306.975 against, and 407.717
abstaining. This simplifies the calculation of fees. A proposal was
also considered whereby the Fund would adopt a 12b-1 Plan to become
its own distributor at no cost to the Fund. This proposal also passed
with 286,837.008 shares voting for, 27,950.707 against, and 6,049.901
abstaining. I want to emphasize that there are NO distribution costs
to be borne by the Fund from this plan. The adviser, Bridgeway
Capital Management, Inc., has borne and will continue to bear all
costs of distribution. The Fund remains a fully no-load fund.
New Shareholder Account Numbers
- -------------------------------
Please notice a new account number on your enclosed year end
statement. Several shareholders requested we not use the social
security number, as this could compromise your account security. We
agreed it was a good idea.
Short-term Performance--Again
- -----------------------------
Translation: We had a great year in 1996. However, we hope you
invested in this Portfolio because you believe in Bridgeway and the
strategy of this Portfolio. The record on chasing last year's "hot
funds," is mixed, at best.
Calendar year 1996 was a great year for your Portfolio. Our goal,
however, is not to hit home runs, but "doubles" on a rather consistent
basis. A mutual fund that can stay in the top fifth of funds for a
number of years running, will find itself in the top 5% long-term.
That's where I'd like to be. Too many mutual funds have one dynamite
year, only to fall to the bottom of the pack the next. Of the top ten
performing domestic equity funds in 1995, only one made it into the
top half in 1996. Three actually registered in the bottom two
percent. These are truly remarkable statistics which indicate the
perils of chasing short-term performance.
Conclusion
- ----------
As always, I appreciate your feedback and suggestions. We are always
looking for ways to improve our service. While I can't make
representations about future performance, I am working hard to make
ours a mutually rewarding long-term relationship.
Sincerely,
John Montgomery
<PAGE>
January 27, 1997
Dear Fellow Social Responsibility Shareholder,
Our performance in absolute terms was very good last quarter; however,
relative to our benchmarks it was poor. The Portfolio gained 3.7% in the
December quarter, significantly lagging the S&P 500 benchmark's return of
8.3%. I am never satisfied if we're not beating our peers and the market.
Performance Summary
- -------------------
The following table presents SEC standardized performance for the December
quarter, one year, and life-to-date*:
<TABLE>
<CAPTION>
Sep. Qtr. 1 Year Life-to-Date
9/30/96 12/31/95 8/5/94 to
to 12/31/96 to 12/31/96 12/31/96 **
<S> <C> <C> <C>
Social Responsibility Portfolio 3.7% 16.2% 19.6%
S&P 500 Index (large stocks)* 8.3% 23.0% 25.3%
Lipper Growth Funds* 5.3% 19.3% 21.1%
</TABLE>
*The Russell 2000 and S&P 500 are unmanaged indexes of large and small
stocks, respectively, 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.
Detailed Explanation of Performance
- -----------------------------------
Our smaller companies with strong social records continued to hold back our
portfolio a bit as investors continued to flock to the "safety" of large
companies. Healthy Planet Products and Ben & Jerry's Ice Cream continued
their downward trend with quarterly declines of 27% and 14%, respectively.
Team Rental, a Budget Rent-a-Car franchisee, eased off from earlier year
gains, declining 15% in the quarter. More than offsetting these were the
stocks of larger companies which make up the bulk of our portfolio. These
included: Great Atlantic and Pacific (up 23%), H. B. Fuller (up 22%), MBNA
Corp. (up 19%), and Cincinnati Bell (up 16%). There were no systematic
industry trends affecting our portfolio. However, the absence of some of
the less "green" industries, such as oil, hurt our financial performance
relative to the S&P 500.
Largest Positions
- -----------------
<TABLE>
<CAPTION>
The following were our largest ten portfolio positions on December 31:
% Net
Company Industry Assets
------- -------- ------
<S> <C> <C>
Great Atlantic & Pacific Retail Stores 6.6%
The Gap Retail Stores 6.3%
Safeway Stores Retail Stores 5.9%
Cincinnati Bell Telecommunications 5.4%
MBNA Corp Banking 5.1%
Student Loan Marketing Finance 5.0%
Nike, Inc. (Class B) Leather & Shoes 5.0%
Monsanto Chemicals 4.7%
Medtronics, Inc. Medical Equipment/Supplies 4.6%
Coca-Cola Company Beverages 4.5%
-----
Total 53.1%
Newest Portfolio Holdings
- -------------------------
The newest additions to our portfolios are Student Loan Marketing and
Monsanto. Student Loan Marketing (or "Sallie Mae") is a federally
chartered organization providing liquidity to banks and educational
institutions that offer federally guaranteed student loans. Times may be
exciting for this company in the next decade. Legislation was signed by
the president recently to change it from a government sponsored
organization to a general purpose corporation. This should relieve certain
regulatory burdens and allow it to compete more effectively in the
marketplace, while continuing to help people seeking a higher education.
Monsanto is a very large U.S. chemical company. So seldom does a chemical
or energy company make it into the top fifth of our social rankings that it
always causes me to take notice. This company achieved the top score in
advancement of women in the workplace, charitable giving, and disclosure of
information. For a chemical company, it also scored unusually high on
environmental factors, which means it is taking progressive measures in a
"non-green" industry.
The People Side of This Business
- --------------------------------
Bridgeway is not just an address. It's not even just money and stock
certificates in a bank. Bridgeway is people. First, its you, our
shareholder. Obviously, without you, I'm out of a job. I pray that I
never, ever take for granted the trust that you have shown by investing in
our young fund. I want to continue to work to earn that trust over the
next few years and decades.
Other people help make up Bridgeway. Karen Gerstner and Miles Harper are
looking out specifically for your interests on our board of directors.
They consider seriously each of the decisions required by federal and state
laws and hold me accountable to the highest standards of integrity. Sherry
Norman at our custodian bank helps ensure your money is secure. I can't
just cash your check and leave town. Patty Avila-Eady and Chris Komarek
audit the Portfolio to help make sure that your purchase value and
redemption value are accurate now and in the future. Steve Barnhill helped
conceive of the name Bridgeway and directed the design process that
resulted in our "logo" and prospectus layout. John Harris programmed our
own accounting system, set up our computer network, and helped me with
research on the ultra-small company asset class. Jim Ellis helped
structure the feasibility study for the Fund. With advanced degrees in
both law and business and decades of securities law experience, he also
serves as the Fund's legal counsel. My wife, mother, brother, sister, and
other family and friends have lent money, time, and moral support. (This
space wouldn't do justice to the support and sacrifice they have shown.)
Almost all of these people have given more than they have taken. It is
humbling to be on the receiving end of such good will.
Finally, you should know about the other people I work with here on a daily
basis. Joanna Schima currently does almost anything in the area of
administration. She was manager of communications at a larger fund
complex, then co-owner of a small business before coming to Bridgeway. She
does everything from payroll and benefits, to hiring and training, to
communications hardware, to insurance, to documenting procedures, to state
registration and compliance. Hers is the friendly southern female voice
you may hear on our answering machine. When she says, "Reality check
time," everyone stops what they're doing and listens. We don't really have
titles at Bridgeway, but if we did, she says hers would be "Queen of Quite
a Lot." It's awesome what she can accomplish in a day. It's just as
awesome to watch the skill, spirit, and love she puts into being a parent.
Glen Feagins worked as an auditor with a large accounting firm and later as
the chief financial officer of a medium size fund company before coming to
Bridgeway. He supervises all our "back room operations," which means
pricing our portfolios and keeping official shareholder records. He is our
primary contact with our custodian, bank, brokers, and auditors. He is
also excellent with computers and maintains our software and hardware--a
very important task for a company that leans heavily on technology. Glen
is a bit older and wiser than the rest of us (his hair is turning a
distinguished gray; mine is just falling out). He is also quieter than the
rest of us, but has a warm personality and strong, but subtle sense of
humor. David Arnold is one of the people we hired on a temporary basis
when we received 10,000+ phone calls last summer from our Mutual Funds
Magazine article on the Ultra-Small Company Portfolio. He's another one of
these "can do" people who showed up the rest of us by getting the highest
Bridgeway grade on his securities examinations. He answers the lions'
share of our phone calls, sends out our literature, assists shareholders
with almost any Fund question under the sun, and does about whatever else
needs to get done. Lest you think we're spread a bit thin, we are adding
one new employee this month.
I want you to picture for a minute working for a very small organization.
You hear you are getting some significant publicity. You estimate demand
based on other organizations' experience with similar publicity, but three
days into publication, you realize you underestimated demand by a factor of
5. Uh, oh. The number of your clients doubles in three months. You
promised your family a 2 week vacation and your name is mud if you cancel
it. You leave anyway, but work one day a week by fax/laptop. Three more
months pass and the number of clients doubles again. This was my
situation. I can't tell you how proud I am of the people I work with for
bringing Bridgeway through this period with remarkably few glitches. These
people are dynamite. We're a stronger organization now, better equipped to
service our current shareholders and ready for the next time we get such
positive publicity.
If there is one thing I am most proud of at Bridgeway, it is the people who
make up Bridgeway.
New Shareholder Account Numbers
- -------------------------------
Please notice a new account number on your enclosed year end statement.
Several shareholders requested we not use the social security number, as
this could compromise your account security. We agreed it was a good idea.
Special Meeting of Shareholders
- -------------------------------
Translation: Shareholders voted to make the Fund the legal distributor
(the organization that mails out fund literature) rather than the advisory
firm (Bridgeway Capital Management, Inc.). Since this was done at NO cost
to the Fund, this was probably a "non-event" for shareholders. This
reduces some expenses for the Advisor and frees up time better spent on
other Fund affairs. Shareholders also voted to reduce some of the
paperwork associated with calculating performance fees.
On October 15, 1996, shareholders of record on July 31 considered a
proposal to approve calculating the performance adjustment fee rate
quarterly instead of monthly and to correct the ending date of the first
five year period to September 30, 1999. This proposal passed, with
87,861.488 shares voting in favor, 306.975 against, and 407.717 abstaining.
This simplifies the calculation of fees. A proposal was also considered
whereby the Fund would adopt a 12b-1 Plan to become its own distributor at
no cost to the Fund. This proposal also passed with 286,837.008 shares
voting for, 27,950.707 against, and 6,049.901 abstaining. I want to
emphasize that there are NO distribution costs to be borne by the Fund from
this plan. The adviser, Bridgeway Capital Management, Inc., has borne and
will continue to bear all costs of distribution. The Fund remains a fully
no-load fund.
Conclusion
- ----------
Enclosed you will find your December account statement. As always, I
appreciate your feedback and suggestions. We are always looking for ways
to improve our service.
Sincerely,
John Montgomery
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS (unaudited)
Showing percentage of total net assets
December 31, 1996
Industry
Company Shares Value
<S> <C> <C>
Common Stock - 86.4%
Air Transport - 1.2%
Atlantic Coast Airlines 2,300 $2,817
Automobiles, Motor Homes and Trucks - 5.1%
Coachman Industries * 4,120 116,905
Banking - 0.7%
Grove Bank * 300 14,925
Building - 5.2%
Continental Homes Holdings 2,300 48,875
Shult Homes Corp. * 3,000 70,500
-----------
119,375
Containers - 0.9%
Disc Graphics 9,900 20,419
Data Processing Hardware - 10.5%
Advanced Logic Research 3,500 43,313
Bell Microproducts, Inc. 1,400 12,425
Equitrac Corporation 1,500 17,625
General Automation, Inc. 17,000 29,750
IKOS System, Inc. 500 10,000
Printronix, Inc. 1,200 16,050
Sun Microsystems, Inc. # 4,200 107,888
-----------
237,051
Data Processing Software - 0.7%
Symix Systems, Inc. 2,000 16,000
Electronics/Electric - 7.7%
Benchmark Electronics 2,500 53,438
C-Cube 1,100 40,631
Nanometrics, Inc. 2,000 9,500
Reliability, Inc. 1,400 8,750
Semtech Corporation 2,300 39,388
Veeco Instruments 1,100 24,200
-----------
175,907
Health Care Facilities - 2.4%
Curative Health 2,000 54,750
Home Furnishings - 0.4%
DMI Furniture Inc 3,700 9,944
Leisure-Amusement - 1.0%
SCP Pool Corporation 1,100 22,825
Machinery - 5.2%
Chart Industries, Inc. * 1,000 17,125
Graco, Inc. 1,900 46,550
JLG Industries * 3,420 54,293
-----------
117,968
Metal / Other fabricating - 4.2%
Oregon Metallurgical Corporation * 3,000 96,750
Mutual Funds - 0.5%
New Germany Fund 550 7,356
Spain Fund * 400 5,100
-----------
12,456
Office Equipment - 2.7%
Mail Well, Inc. 3,800 62,225
</TABLE>
<PAGE>
[CAPTION]
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS (unaudited)
Showing percentage of total net assets
December 31, 1996
Industry
Company Shares Value
<S> <C> <C>
Oil & Gas - 12.9%
Comstock Resources, Inc. 4,900 63,700
Helmerich Payne * 3,500 182,438
Key Production, Inc. 1,500 19,125
McFarland Energy, Inc. 2,400 29,100
-----------
294,363
Pollution Control - 2.0%
American Eco Corporation 6,800 46,750
Retail Stores - 17.3%
CompUSA, Inc. # 4,660 96,113
Damark International, Inc. 3,400 31,025
Nutrition For Life International, Inc. * 4,000 48,000
One Price Clothing Store, Inc. 4,400 12,650
TJX Companies, Inc. * 3,800 180,025
Tuesday Morning Corporation 1,200 25,650
-----------
393,463
Securities - 0.3%
JB Oxford Holdings, Inc. 5,300 7,288
Services - 1.4%
Team Rental Group, Inc. 2,000 32,250
Steel / Iron - 0.7%
Northwest Pipe Company 1,000 16,250
Transportation / Freight - 1.9%
Hvide Marine, Inc. 2,000 43,500
Utilities-Electric - 1.5%
Bangor Hydro-Electric Company * 3,500 33,250
-----------
Total Common Stock (Identified Cost $1,684,637) 1,972,789
Options - 1.3%
Data Processing - 0.5%
SUNW 1/98 @ 25 Calls 20 11,500
Retail Stores - 0.8%
CompUSA 2/97 @ 15 Calls 20 12,250
CompUSA 5/97 @ 20 Calls 15 5,250
CompUSA 5/97 @ 25 Calls 6 900
-----------
18,400
-----------
Total Options (Identified Cost $44,584) 29,900
Short-term Investments - 6.9%
Money Market Funds - 6.9%
Lehman Bros. Prime Money Market
Class A 53,244 53,244
SEI Daily Income Trust Prime Obligations
Obligations 51,679 51,679
Starburst Money Market Fund 51,678 51,678
-----------
156,601
Total Short-term Investments (Identified Cost $156,601) 156,601
-----------
Total Investments - 94.6% 2,159,290
Other Assets and Liabilities, net - 5.4% 122,766
-----------
Total Net Assets - 100.0% $2,282,056
===========
</TABLE>
* Income-producing security.
# The portfolio owns a call option on this security.
** The aggregate identified cost on a tax basis is $1,885,822.
Gross unrealized appreciation and depreciation
were $384,606 and $111,138, respectively, or
net unrealized appreciation of $273,468.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC.
SOCIAL RESPONSIBILITY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS (unaudited)
Showing percentage of total net assets
December 31, 1996
Industry
Company Shares Value
<S> <C> <C>
Common Stock - 91.0%
Air Transport - 3.2%
AMR Corporation 150 $13,219
Banking - 5.8%
Bank of Boston Corporation * 45 2,891
MBNA Corp * 500 20,750
-----------
23,641
Beverages - 4.5%
Coca-Cola Company * 350 18,419
Chemicals - 8.8%
Fuller (HB) * 350 16,450
Monsanto 500 19,438
-----------
35,888
Drugs-Generic and OTC - 10.6%
Merck & Company * 195 15,503
Pfizer, Inc. * 155 12,865
Schering Plough Corporation * 229 14,828
-----------
43,196
Finance - 5.0%
Student Loan Marketing 220 20,488
Food - 0.1%
Ben & Jerry's Homemade, Inc. 50 544
Graphic Arts - 0.5%
Healthy Planet Products, Inc. 525 1,969
Health Care Facilities - 2.1%
Pacificare Health Systems 107 8,694
Leather & Shoes - 5.0%
Nike, Inc. (Class B) * 340 20,315
Medical equipment/Supplies - 10.4%
Johnson & Johnson * 230 11,443
Medtronics, Inc. * 278 18,904
Sofamor/Danek Group 400 12,200
-----------
42,547
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC.
SOCIAL RESPONSIBILITY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS (unaudited)
Showing percentage of total net assets
December 31, 1996
Industry
Company Shares Value
<S> <C> <C>
Retail Stores - 22.9%
Gantos, Inc. 1,700 5,525
Great Atlantic & Pacific * 850 27,094
Lands End 450 11,925
Safeway Stores 562 24,026
The Gap * 850 25,606
-----------
94,176
Services - 2.6%
Team Rental Group, Inc. 650 10,481
Specialty Instruments - 4.1%
Hewlett Packard Company * 332 16,683
Telecommunications - 5.4%
Cincinnati Bell * 360 22,185
-----------
Total Common Stock (Identified Cost $321,024) 372,445
Short-term Investments - 14.2%
Money Market Funds - 14.2%
Lehman Bros. Prime Money Market Class A 8,629 8,629
SEI Daily Income Trust Prime Obligations 8,375 8,375
Starburst Money Market Fund 8,375 8,375
Strong Money Market, Inc. 33,000 33,000
-----------
58,379
-----------
Total Short-term Investments (Identified Cost $58,379) 58,379
-----------
Total Investments - 105.2% 430,824
Other Assets and Liabilities, net - (5.2)% -21,440
-----------
Total Net Assets - 100.0% $409,384
===========
</TABLE>
* Income producing security.
** The aggregate identified cost on a tax basis is $379,403.
Gross unrealized appreciation and depreciation were $60,803
and $9,382, respectively, or net unrealized appreciation
of $51,421.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC.
ULTRA-SMALL COMPANY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS (unaudited)
Showing percentage of total net assets
December 31, 1996
Industry
Company Shares Value
<S> <C> <C>
Common Stock - 92.0%
Aerospace - 0.5%
Kellstrom Industries, Inc. 7,500 $62,813
Air Transport - 0.7%
Atlantic Coast Airlines 8,200 100,450
Aircraft Manufacturing/components - 0.4%
Petroleum Helicopters, Inc. * 3,000 52,500
Auto parts - 0.9%
Audiovox Corp. 12,000 68,250
R & B, Inc. 7,500 57,188
-----------
125,438
Automobiles - 1.1%
Monaco Coach Corp. 9,600 156,000
Automobiles, Motor Homes and Trucks - 1.4%
Collins Industries, Inc. 32,000 188,000
Banking - 3.1%
Dime Financial of Connecticut * 6,600 113,850
Grove Bank * 4,900 243,775
Hallmark Savings 2,500 44,375
Peoples Bank Of Indiana * 500 18,000
-----------
420,000
Beverages - 0.3%
Cable Car Beverage Corporation 19,800 44,550
Building - 5.5%
American Woodmark Corporation * 10,300 141,947
Continental Homes Holdings 19,300 410,125
Engle Homes, Inc. * 6,900 58,650
M/I Schottenstein Homes 5,900 64,163
Perini Corporation 2,900 22,656
Zaring Homes, Inc. 5,000 56,250
-----------
753,791
Coatings, Paint,Varnishes - 0.4%
Southwall Technologies, Inc 9,200 57,500
Data Processing Hardware - 7.2%
Astro-med, Inc. * 1,500 12,750
Bell Microproducts, Inc. 19,600 173,950
Cayenne Software, Inc. 9,800 37,363
Ciprico, Inc. 7,300 106,763
Equitrac Corporation 1,000 11,750
General Automation, Inc. 76,800 134,400
Graphix Zone 21,000 52,500
International Micro Software 9,500 142,500
QMS, Inc. 4,800 25,200
STB Systems, Inc. 9,000 182,250
Tripos, Inc. 6,500 76,375
Xata Corporation 3,500 24,938
-----------
980,739
Data Processing Software - 1.4%
Symix Systems, Inc. 23,200 185,600
Drugs-Generic and OTC - 1.3%
Embrex, Inc. 16,500 107,250
Neogen Corporation 9,000 64,688
Procyte Corporation 5,800 13,050
-----------
184,988
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC.
ULTRA-SMALL COMPANY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS (unaudited)
Showing percentage of total net assets
December 31, 1996
Industry
Company Shares Value
<S> <C> <C>
Electronics/Electric - 11.5%
Datum, Inc. 6,800 114,750
Diagnostic/Retrieval Systems, Inc. 4,500 56,250
Engineered Support Systems 23,900 352,525
JPM Company 8,500 148,750
K-Tron International 20,100 206,025
Nam Tai Electronics, Inc. 1,000 7,750
Nanometrics, Inc. 1,000 4,750
Polk Audio, Inc. 3,500 42,875
Reliability, Inc. 8,000 50,000
Semtech Corporation 11,100 190,088
Spectrum Control, Inc. 3,000 10,125
Super Vision International, Inc. 11,400 72,675
Wandel & Goltermann Technology 10,800 315,900
-----------
1,572,463
Finance - 1.3%
ACE Cash Express, Inc. 7,500 84,375
American Physicians Service Group 12,400 80,600
PDS Financial Corporation 2,000 3,500
TFC Enterprises 5,800 9,425
-----------
177,900
Food - 0.2%
Fresh America 1,800 29,700
Food Serving - 0.6%
Family Steak House 6,200 3,875
Garden Fresh Restaurant 7,200 72,900
-----------
76,775
Health Care Facilities - 2.7%
Advocat, Inc. 13,800 100,050
Alliance Imaging, Inc. 20,000 115,000
Caretenders Health Corporation 2,800 15,400
Dianon Systems, Inc. 4,500 38,813
SMT Health Services, Inc. 4,900 41,650
Sheridan Healthcare, Inc. 9,800 57,575
-----------
368,488
Home Furnishings - 2.8%
Craftmade International * 3,500 21,438
Rowe Furniture, Corporation * 4,800 38,400
Tab Products * 6,700 59,044
Winsloew Furniture 27,100 264,225
-----------
383,107
Insurance - 0.6%
Omni Insurance Group 2,800 26,600
Unico American * 4,500 48,938
-----------
75,538
Leisure-Amusement - 5.3%
Cinergi Pictures Entertainment. Inc. 12,500 24,609
E R O, Inc. 2,900 25,375
Fountain Powerboat 6,600 120,450
Funco, Inc. 18,100 151,588
Moviephone 4,500 19,688
PTI Holding, Inc. 18,600 158,100
Play By Play Toys 1,500 18,000
SCP Pool Corporation 10,200 211,650
-----------
729,460
Machinery - 2.6%
Chart Industries, Inc. * 4,200 71,925
Newcor, Inc. 3,000 22,875
Selas Corporation of America 5,800 98,600
U.S. Home & Garden 72,800 159,250
Venturian Corporation 1,000 8,125
-----------
360,775
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC.
ULTRA-SMALL COMPANY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS (unaudited), continued
Showing percentage of total net assets
December 31, 1996
Industry
Company Shares Value
<S> <C> <C>
Common Stock - 92.0%, continued
Manufacturing/Distributing - 0.9%
Chase Corporation * 2,100 18,638
Dominion Bridge Corporation 47,800 107,550
-----------
126,188
Medical equipment/Supplies - 2.5%
AFP Imaging Corporation 3,000 5,625
Biosource International, Inc. 8,800 60,500
Contour Medical, Inc. 7,000 32,375
I-Flow Corporation 20,000 108,750
Lukens Medical Corporation 8,900 37,825
Medical Resources, Inc. 6,300 71,663
Meridian 3,000 25,875
-----------
342,613
Mining - 0.2%
Alta Gold 9,000 31,781
Oil & Gas - 13.9%
Adams Research & Energy, Inc. 2,000 24,500
American Oilfield Divers 26,500 314,688
Clayton Williams Energy 25,000 434,375
Comstock Resources, Inc. 20,500 266,500
Maverick Tube Corporation 20,100 256,275
Maynard Oil Company 1,500 28,125
McFarland Energy, Inc. 24,700 299,488
Petroleum Development Corporation 35,200 147,400
Southern Minerals 4,000 23,500
Tatham Offshore, Inc. 12,000 8,625
UTI Energy 3,000 106,125
-----------
1,909,601
Pollution Control - 3.3%
American Eco Corporation 37,500 257,813
KTI, Inc. 3,300 24,338
Misonix, Inc. 21,300 166,406
-----------
448,557
Retail Stores - 8.2%
Damark International, Inc. 17,200 156,950
Family Bargain 22,833 51,374
Freds, Inc. 2,000 17,250
Gantos, Inc. 32,300 104,975
J. Baker, Inc. 4,800 25,500
Jim Hjelms Private Collection 4,500 22,500
Nutrition For Life International, Inc. * 22,080 264,960
One Price Clothing Store, Inc. 44,100 126,788
Roses Store Inc. 3,800 7,125
S&K Famous Brands 6,800 64,600
Trans World Entertainment Corporation 9,400 66,975
Tuesday Morning Corporation 10,200 218,025
-----------
1,127,022
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC.
ULTRA-SMALL COMPANY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS (unaudited), continued
Showing percentage of total net assets
December 31, 1996
Industry
Company Shares Value
<S> <C> <C>
Securities - 1.3%
JB Oxford Holdings, Inc. 19,000 26,125
M. H. Myerson & Co., Inc. 25,000 81,250
Southwest Securities Group * 5,000 75,000
-----------
182,375
Services - 3.1%
Advanced Marketing Services, Inc. 10,400 105,300
Corrpro Companies 6,200 58,900
ICF Kaiser International, Inc. 14,500 29,000
Maxserve 12,100 83,944
RCM Technologies, Inc. 16,800 147,000
-----------
424,144
Specialty Instruments - 1.4%
Laser Industries Ltd. 18,800 190,350
Steel / Iron - 0.9%
Northwest Pipe Company 7,400 120,250
Telecommunications - 2.2%
Blounder Tongue Labs, Inc. 4,800 42,000
Cabletel Communications Corporation 8,300 45,650
EMCEE Broadcast Products 12,900 93,525
Total-tel USA Communications, Inc. 2,000 37,500
Wegener Corporation 20,000 78,750
-----------
297,425
Textiles - 2.2%
Dixie Yarns, Inc. 9,700 75,175
Worldtex, Inc. 24,900 220,988
-----------
296,163
Transportation / Freight - 0.2%
Consolidated Delivery & Logistical, Inc. 6,000 27,000
-----------
Total Common Stock (Identified Cost $11,498,510) 12,610,044
Money Market Funds - 4.7%
Lehman Bros. Prime Money Market Class A 219,150 219,150
SEI Daily Income Trust Prime Obligations 212,705 212,705
Starburst Money Market Fund 212,705 212,705
-----------
644,560
-----------
Short-term Investments - 4.7% 644,560
-----------
Total Investments - 96.7% 13,254,604
Other Assets and Liabilities, net - 3.3% 453,590
-----------
Total Net Assets - 100.0% $13,708,194
===========
</TABLE>
* Income producing security.
** The aggregate identified cost on a tax basis is $12,143,070.
Gross unrealized appreciation and depreciation were $1,904,694
and $793,160 respectively, or net unrealized appreciation
of $1,111,534.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
As of December 31, 1996
Ultra-Small Aggressive Social
Company Growth Responsibility
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Assets:
Investments at value * $13,254,604 $2,159,290 $430,824
Cash 768,770 126,737 4,235
Receivable for investments sold 213,628 0 20,927
Receivable for interest 415 671 241
Receivable for dividends 2,231 85 324
Receivable from adviser 0 4,229 631
Prepaid expenses 5,212 935 560
Deferred organization costs 11,500 11,500 11,500
------------- ------------- -------------
Total assets 14,256,360 2,303,447 469,242
Liabilities:
Payable for investments purchased 523,174 0 40,095
Payable for management fee 336 6,486 0
Payable for organization costs 11,513 11,513 11,513
Accrued expenses 13,143 3,392 8,250
------------- ------------- -------------
Total liabilities 548,166 21,391 59,858
------------- ------------- -------------
Net Assets $13,708,194 $2,282,056 $409,384
============= ============= =============
Shares Outstanding 799,191 136,482 28,924
============= ============= =============
Net asset value, offering and redemption price
per share $17.15 $16.72 $14.15
============= ============= =============
Net Assets Represent:
Paid-in capital $12,332,691 $2,008,475 $364,747
Undistributed net realized gain 263,969 113 (6,784)
Net unrealized appreciation of investments 1,111,534 273,468 51,421
------------- ------------- -------------
Net assets $13,708,194 $2,282,056 $409,384
============= ============= =============
* Investments at cost $12,143,070 $1,885,822 $379,403
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC.
STATEMENT OF OPERATIONS (Unaudited)
For the six months ended December 31, 1996
Ultra-Small Aggressive Social
Company Growth Responsibility
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment income:
Dividends $6,094 $4,188 $1,309
Interest 7,032 2,656 1,511
------------- ------------- -------------
Total income 13,126 6,844 2,820
Expenses:
Management fees 40,679 14,666 1,062
Accounting fees 31,955 5,716 3,677
Audit fees 5,069 3,549 3,549
Custody 5,685 1,314 286
Amortization of organization costs 2,347 2,347 2,347
Insurance 1,998 355 63
Legal 9,802 1,949 151
Registration fees 3,124 668 578
Director fees 200 200 200
Miscellaneous 15 15 15
------------- ------------- -------------
Total expenses 100,874 30,779 11,928
Less fees waived (10,385) (12,388) (4,739)
Less expenses reimbursed 0 0 (4,260)
------------- ------------- -------------
Net expenses 90,489 18,391 2,929
------------- ------------- -------------
Net investment income (loss) (77,363) (11,547) (109)
------------- ------------- -------------
Net realized and unrealized gain(loss) on investments:
Net realized gain (loss) on investments
Net change in unrealized appreciation during 271,044 (9,521) 4,609
period 792,108 145,326 5,552
------------- ------------- -------------
Net realized and unrealized gain 1,063,152 135,805 10,161
Net increase in assets
------------- ------------- -------------
resulting from operations: $985,789 $124,258 $10,052
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS (Unaudited)
<S> <C> <C> <C>
Ultra-Small Company Portfolio Six months ended Year ended
Increase (decrease) in net assets: December 31, 1996 June 30, 1996 see * below
Operations:
Net investment income (loss) ($77,363) ($23,352) ($2,117)
Net realized gain (loss) on investments 271,044 371,952 (3,571)
Net change in unrealized appreciation 792,108 247,576 70,908
------------- ------------- -------------
Net increase resulting from operations 985,789 596,176 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 8,985,314 3,392,930 568,271
Reinvestment of dividends 209,831 43,592 224
Cost of shares redeemed (802,154) (98,400) 0
------------- ------------- -------------
Net increase from Fund share transactions 8,392,991 3,338,122 568,495
------------- ------------- -------------
Net increase in net assets 9,150,603 3,890,055 633,491
Net assets:
Beginning of period 4,557,591 667,536 34,045
------------- ------------- -------------
End of period $13,708,194 $4,557,591 $667,536
============= ============= =============
Number of Fund shares:
Sold 564,260 217,309 55,498
Issued on dividends reinvested 12,394 3,338 22
Redeemed (50,708) (6,219) 0
------------- ------------- -------------
Net increase 525,946 214,428 55,520
Outstanding at beginning of period 273,245 58,817 3,297
------------- ------------- -------------
Outstanding at end of period 799,191 273,245 58,817
============= ============= =============
=====================================================================================================
Aggressive Growth Portfolio
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ($11,547) ($9,319) ($465)
Net realized gain (loss) on investments (9,521) 166,362 (1,720)
Net change in unrealized appreciation 145,326 95,798 32,675
------------- ------------- -------------
Net increase resulting from operations 124,258 252,841 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 942,752 989,807 188,873
Reinvestment of dividends 123,538 3,894 48
Cost of shares redeemed (282,114) (15,887) 0
------------- ------------- -------------
Net increase from Fund share transactions 784,176 977,814 188,921
------------- ------------- -------------
Net increase in net assets 779,571 1,226,213 219,363
Net assets:
Beginning of period 1,502,485 276,272 56,909
------------- ------------- -------------
End of period $2,282,056 $1,502,485 $276,272
============= ============= =============
Number of Fund shares:
Sold 56,353 67,496 17,837
Issued on dividends reinvested 7,362 294 5
Redeemed (17,410) (1,209) 0
------------- ------------- -------------
Net increase 46,305 66,581 17,842
Outstanding at beginning of period 90,177 23,596 5,754
------------- ------------- -------------
Outstanding at end of period 136,482 90,177 23,596
============= ============= =============
=====================================================================================================
Social Responsibility Portfolio
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ($109) ($357) $295
Net realized gain (loss) on investments 4,609 10,228 (854)
Net change in unrealized appreciation 5,552 39,110 7,469
------------- ------------- -------------
Net increase resulting from operations 10,052 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 72,349 268,541 33,982
Reinvestment of dividends 21,520 297 19
Cost of shares redeemed (33,977) (20,983) (518)
------------- ------------- -------------
Net increase from Fund share transactions 59,892 247,855 33,483
------------- ------------- -------------
Net increase in net assets 48,424 296,539 40,374
Net assets:
Beginning of period 360,960 64,421 24,047
------------- ------------- -------------
End of period $409,384 $360,960 $64,421
============= ============= =============
Number of Fund shares:
Sold 5,086 20,594 3,152
Issued on dividends reinvested 1,556 23 2
Redeemed (2,309) (1,577) (45)
------------- ------------- -------------
Net increase 4,333 19,040 3,109
Outstanding at beginning of period 24,591 5,551 2,442
------------- ------------- -------------
Outstanding at end of period 28,924 24,591 5,551
============= ============= =============
* from August 5, 1994 (commencement of operations) to June 30, 1995
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC.
FINANCIAL HIGHLIGHTS (Unaudited)
(for a share outstanding throughout the period)
Six months ended Year ended
December 31, 1996 June 30, 1996 see * below
<S> <C> <C> <C>
Ultra-Small Company Portfolio
Per share data
Net asset value, beginning of period $16.68 $11.35 $10.33
------------- ------------- -------------
Income (loss) from investment operations:
Net investment income (loss) (0.14) (0.21) (0.04)
Net realized and unrealized gain 0.93 6.03 1.07
------------- ------------- -------------
Total from investment operations 0.79 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 $17.15 $16.68 $11.35
============= ============= =============
======================================================================================================
Total return [1] 4.8% 52.4% 10.5%
Ratios & Supplemental Data
Net assets, end of period $13,708,194 $4,557,591 $667,536
Ratios to average net assets: [2]
Expenses net of waivers and reimbursements 2.00% 1.97% 1.68%
Expenses before waivers and reimbursements 2.22% 3.07% 8.34%
Net investment income (loss) (1.71%) (1.47%) (0.65%)
Portfolio turnover rate [2] 72.7% 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 income (loss) (0.11) (0.18) (0.02)
Net realized and unrealized gain 1.23 5.22 1.84
------------- ------------- -------------
Total from investment operations 1.12 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 $16.72 $16.66 $11.71
============= ============= =============
======================================================================================================
Total return [1] 6.7% 43.3% 19.5%
Ratios & Supplemental Data
Net assets, end of period $2,282,056 $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 3.35% 5.73% 16.15%
Net investment income (loss) (1.26%) (1.26%) (0.30%)
Portfolio turnover rate [2] 80.9% 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) 0.00 (0.02) 0.07
Net realized and unrealized gain 0.28 3.11 1.70
------------- ------------- -------------
Total from investment operations 0.28 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 $14.15 $14.68 $11.61
============= ============= =============
======================================================================================================
Total return [1] 2.0% 26.6% 18.9%
Ratios & Supplemental Data
Net assets, end of period $409,384 $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 6.09% 16.80% 72.83%
Net investment income (loss) (0.06%) (0.17%) 0.90%
Portfolio turnover rate [2] 65.1% 83.8% 71.7%
[1] Not annualized for the period August 5, 1994 to June 30, 1995 or
for the six months ended December 31, 1996
[2] Annualized for the period August 5, 1994 to June 30, 1995 and
for the six months ended December 31, 1996
* from August 5, 1994 (commencement of operations) to June 30, 1995
</TABLE>
See accompanying notes to financial statements.
<PAGE>
BRIDGEWAY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. Organization:
Bridgeway Fund, Inc. (the "Fund") was organized as a Maryland corporation on
October 19, 1993, and is registered under the Investment Company Act of 1940,
as amended, as a no-load, diversified, open-end management investment
company.
The Fund is organized as a series fund and has three portfolios, the
Ultra-Small Company Portfolio, the Aggressive Growth Portfolio and the
Social Responsibility Portfolio. The Fund is authorized to issue
1,000,000,000 shares. The Fund commenced operations as a regulated
investment company on August 5, 1994.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Securities Valuation
--------------------
Securities are valued at the closing price for securities traded on a
principal U.S. securities exchange and on 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 December 31, 1996, each portfolio had deferred organization costs
in the amount of $11,513 payable to Bridgeway Capital Management, Inc., a
shareholder.
<PAGE>
BRIDGEWAY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited), continued
Distributions to Shareholders
-----------------------------
Distributions to shareholders are recorded when declared. The amount
and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles.
Use of Estimates in Financial Statements
----------------------------------------
In preparing financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions
that affect the reported amounts of assets and liabilities at the
date of the financial statements, as well as the reported amounts of
income and expenses during the reporting period.
Other
-----
Security transactions are accounted for as of the trade date, the date the
order to buy or sell is executed. Realized gains and losses are
computed on the identified cost basis. Dividend income is recorded on
the ex-dividend date, and interest income is recorded on the accrual basis.
Assets in the Social Responsibility Portfolio are very low, and 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 in October. A summary of options purchased by the
Aggressive Growth Portfolio follows:
<TABLE>
<CAPTION>
Call Options Put Options
# of Cost # of Cost
Calls Puts
<S> <C> <C> <C> <C>
Options outstanding 06/30/96 20 $34,300 0 $0
Options purchased 61 $44,584 2 $1,492
Options expired (0) ($0) 0 $0
Options closed (20) ($34,300) (2) ($1,492)
--- ------- --- ------
Outstanding at 12/31/96 61 $44,584 0 $0
=== ======= === ======
</TABLE>
<PAGE>
BRIDGEWAY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited), continued
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%.
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 expense category of the financial statements.
The Adviser 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 currently has no plans to change this practice.
To achieve this expense level the Adviser has waived both the management
fees and accounting fees for the six months ended December 31, 1996 for
the Social Responsibility Portfolio. For the Ultra-Small Company and
Aggressive Growth Portfolios, the Adviser has waived a portion of their
management fees.
5. Custodial Agreement:
The Fund has entered into a Custodial Agreement with River Oaks Trust
Company. As compensation for services rendered by the custodian, each
portfolio will pay a fee, computed and paid quarterly based on the
average month end total assets of each portfolio for the quarter. Such
fee is based on the following annual rates: 0.14% of the first $10 million
of each portfolio's average net assets, 0.12% of the next $30 million,
0.10% of any excess over $40 million. The fee is subject to an annual
minimum fee of $10,000 for all portfolios combined.
<PAGE>
BRIDGEWAY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited), continued
6. Cost, Purchases and Sales of Investment Securities:
Investments have the same cost for tax and financial statement
purposes. Aggregate purchases and sales of investment securities,
other than cash equivalents were as follows:
<TABLE>
<CAPTION>
Cost of Proceeds
Portfolio Purchases from Sales
<S> <C> <C>
Ultra-Small Company $10,698,147 $3,107,796
Aggressive Growth $1,179,666 $690,954
Social Responsibility $199,570 $106,273
</TABLE>
<PAGE>
