File No. 33-72416
As filed with the Securities and Exchange Commission on
July 3, 1997
===================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. __
Post-Effective Amendment No. _5_
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 5
BRIDGEWAY FUND, INC.
(Exact name of Registrant as Specified in Charter)
5650 Kirby Drive, Suite 141, Houston, Texas 77005-2443
(Address of Principal Executive Office)
(713) 661-3500
(Registrant's Telephone Number, Including Area Code)
JOHN N.R. MONTGOMERY, PRESIDENT
Bridgeway Capital Management, Inc.
5650 Kirby Drive, Suite 141, Houston, Texas 77005-2443
(Name and Address of Agent for Service)
Approximate Date of Proposed Offering: As soon as practical after the
effective date of this Registration Statement under the Securities Act
of 1933.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Pursuant to Section 24(f) of the Investment Company Act of 1940 and
Rule 24f-2 thereunder, the Registrant hereby declares that an
indefinite number of its shares of beneficial interest is being
registered by this Registration Statement.
=================================================================
It is proposed that this filing will become effective
[ ] immediately upon filing pursuant to paragraph (b)
[x] on July 20, 1977 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph (a) (2)
[x] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
BRIDGEWAY FUND, INC.
ULTRA-SMALL COMPANY (closed)
ULTRA-SMALL INDEX (new)
AGGRESSIVE GROWTH
SOCIAL RESPONSIBILITY
ULTRA-LARGE 35 INDEX (new)
PROSPECTUS
July 20, 1997
BRIDGEWAY CAPITAL MANAGEMENT, INC.
INVESTMENT ADVISOR
5650 KIRBY DRIVE, SUITE 141
HOUSTON, TX 77005-2443
713 661-3265
800-661-3550
[LOGO GRAPHIC OMITTED]
B R I D G E W A Y
TABLE OF CONTENTS
Table of Fees and
Expenses...............................................2
Risk Factors...........................................3
Investment Objectives and Policies.....................6
Disclaimers............................................10
Redemption Reimbursement Fees..........................10
Principal Investment Restrictions......................11
Management of the Fund.................................11
Code of Ethics.........................................12
Distribution of Fund Shares............................13
How to Purchase Shares.................................13
Net Asset Value........................................14
How to Redeem Shares...................................14
Exchange Privilege.....................................15
Dividends and Tax Status...............................15
Performance Information................................16
General Information....................................16
PROSPECTUS July 20, 1997
BRIDGEWAY
FUND, INC.
Bridgeway Fund, Inc. (the "Fund") is a no-load, diversified, open-end
management investment company commonly referred to as a mutual fund. The
Fund is organized as a series fund and has five portfolios, Bridgeway
Ultra-Small Company Portfolio, Bridgeway Ultra-Small Index Portfolio,
Bridgeway Aggressive Growth Portfolio, Bridgeway Social Responsibility
Portfolio, and Bridgeway Ultra-Large 35 Index Portfolio. All five have an
investment objective of providing total return (capital appreciation and
current income), but the first three primarily target capital appreciation.
All are intended as long-term investments. THE FUND STRONGLY DISCOURAGES
SHORT-TERM TRADING OF ITS SHARES. The Aggressive Growth Portfolio uses
more aggressive investment techniques, while the Ultra-Small Company and
Ultra-Small Index Portfolios exhibit higher than average short-term
volatility. There can be no assurance that the Portfolios will achieve
their investment objectives. These Portfolios will pursue their objectives
by investing primarily in a diversified portfolio of common stocks. The
Aggressive Growth and Social Responsibility Portfolios may use leverage
(borrowing or derivatives), may hedge risk with short sales, and may use
other investment techniques. See: "Risk Factors" (page 3) and Summary of
Investment Techniques Used (page 8). Shares of each portfolio are sold at
their net asset value without a sales charge and there are no distribution
charges paid by the Fund.
This prospectus concisely sets forth the information about the Fund that a
prospective investor should seek to learn before investing. Investors are
advised to read this prospectus and retain it for future reference. A
Statement of Additional Information, dated July 20, 1997 has been filed
with the Securities and Exchange Commission and is available without any
charge by writing or calling the Fund at the address or phone number
listed on the back cover. The Statement of Additional Information is
incorporated into this prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF FEES AND EXPENSES
(for each portfolio)
<TABLE>
<CAPTION>
ULTRA-SMALL ULTRA-SMALL AGGRESSIVE SOCIAL ULTRA-LARGE
SHAREHOLDER TRANSACTION EXPENSES: COMPANY INDEX GROWTH RESPONSIBILITY 35 INDEX
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchase None None None None None
Maximum Sales Load Imposed on
Reinvested Distributions None None None None None
Deferred Sales Load None None None None None
Redemption Fees None None None None None
Redemption Reimbursement in Down Markets# None 2.0% None None 2.0%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management Fees (after waivers)* 0.00% 0.50% 0.00% 0.00% 0.00%
12b-1 Fees 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses (after reimbursements and waivers)** 1.97% 0.25% 1.97% 1.48% 0.07%
Total Fund Operating Expenses (after reimbursements
and waivers) ** 1.97% 0.75% 1.97% 1.48% 0.15%
</TABLE>
See Redemption Reimbursement Fee on page 10.
*Management fees for the fiscal year ending June 30, 1996 before waivers
were 0.90%, 1.09%, and 0.67% for the Ultra-Small Company, Aggressive Growth
and Social Responsibility Portfolios, respectively. Due to the performance
fee adjustment feature contained in the advisory contract, the management
fee may be as low as 0.2% or as high as 1.6% for the Aggressive Growth and
Social Responsibility Portfolios. The management fee for the Ultra-Small
Company Portfolio is a constant 0.9% except that the fee for the Ultra-Small
Company Portfolio during the period that the portfolio's net assets range
from $27.5 to $55 million will be a flat $495,000 annually, subject to a
maximum rate of 1.49%. The management fee will be a constant 0.5% for the
Ultra-Small Index Portfolio and 0.08% for the Bridgeway Ultra-Large 35
Index Portfolio. (See Management of the Fund, pages 11-12.)
**Other expenses for the fiscal year ending June 30, 1996 before
reimbursements and waivers were 2.17% for Ultra-Small Company, 4.64% for
Aggressive Growth, and 16.13% for Social Responsibility. Other expenses
for the Ultra-Small Index and Ultra-Large 35 Index Portfolio
are estimated as they are new as of the date of this prospectus. The
Adviser has undertaken to reimburse the fund for any operating expenses
over 2.0% for Ultra-Small Company and Aggressive Growth, 1.5% for Social
Responsibility, 0.75% for Ultra-Small Index and 0.15% for
Ultra-Large 35 Index through at least June 30, 1998. Total fund operating
expenses before reimbursements and waivers during the fiscal year were
3.07%, 5.73% and 16.80% of average net assets for the Ultra-Small Company,
Aggressive Growth and Social Responsibility Portfolios, respectively.
Example:
You would pay the following expenses on a $1,000 investment assuming,
(1) expenses at the 6/30/97 rate of 2.0% for the Ultra-Small Company and
Aggressive Growth Portfolios and 1.5% for the Social Responsibility
Portfolio, 0.75% for the Ultra-Small Index Portfolio, and 0.15% for the
Ultra-Large 35 Index Portfolio, (2) a 5% annual return and
(3) redemption at the end of each time period not in a major market
decline (see Reimbursement Fee on page 10):
ULTRA-SMALL COMPANY & SOCIAL ULTRA-SMALL ULTRA-LARGE
AGGRESSIVE GROWTH RESPONSIBILITY INDEX 35 INDEX
1 Year $20 1 Year $15 1 Year $8 1 Year $2
3 Years $62 3 Years $47 3 Years $23 3 Years $5
5 Years $106 5 Years $80 5 Years $40 5 Years $8
10 Years $228 10 Years $175 10 Years $90 10 Years $19
The amounts listed in this example should not be considered as
representative of future expenses and actual expenses may be greater or
less than those indicated. Moreover, while the example assumes a 5%
return, the Fund's actual performance will vary and may result in an actual
return greater or less than 5%. The foregoing table is to assist you in
understanding the various direct and indirect costs and expenses that an
investor in the Fund would bear. Redemptions by mail (up to four per year
or through the automatic withdrawal plan) incur no charges, but wire
redemptions will incur a $15 charge to offset bank charges and
administrative expense. Redemptions on any day when the S&P 500 Index has
declined more than 5% in the previous 5 trading sessions may incur a 2%
redemption fee (Bridgeway Ultra-Small Index and Ultra-Large 35 Index
Portfolios only) which accrues to the portfolio.
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC.
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the period)
Ultra-Small Company Portfolio Aggressive Growth Portfolio Social Responsibility Portfolio
Year ended 8/5/94 to 6/30/95 Year ended 8/5/94 to 6/30/95 Year ended 8/5/94 to 6/30/95
June 30, 1996 * June 30, 1996 * June 30, 1996 *
<S> <C> <C> <C> <C> <C> <C>
Per share data
Net asset value,
beginning of period $11.35 $10.33 $11.71 $9.89 $11.61 $9.85
Income (loss) from investment operations:
Net investment
income (loss) (0.21) (0.04) (0.18) (0.02) (0.02) 0.07
Net realized and
unrealized gain 6.03 1.07 5.22 1.84 3.11 1.70
----------- -------- ----------- --------- ----------- --------
Total from investment
operations 5.82 1.03 5.04 1.82 3.09 1.77
Less distributions to shareholders:
Net investment income 0.00 0.00 0.00 0.00 (0.02) (0.01)
Net realized gains (0.49) (0.01) (0.09) 0.00 0.00 0.00
----------- -------- ----------- --------- ----------- --------
Total distributions (0.49) (0.01) (0.09) 0.00 (0.02) (0.01)
----------- -------- ----------- --------- ----------- --------
Net asset value,
end of period $16.68 $11.35 $16.66 $11.71 $14.68 $11.61
=========== ======== =========== ========= =========== ========
Total return [1] 52.4% 10.5% 43.3% 19.5% 26.6% 18.9%
Ratios & Supplemental Data
Net assets, end of period $4,557,591 $667,536 $1,502,485 $276,272 $360,960 $64,421
Ratios to average net assets: [2]
Expenses net of waivers
and reimbursements 1.97% 1.68% 1.97% 1.86% 1.48% 1.46%
Expenses before waivers
and reimbursements 3.07% 8.34% 5.73% 16.15% 16.80% 72.83%
Net investment
income (loss) (1.47%) (0.65%) (1.26%) (0.30%) (0.17%) 0.90%
Portfolio turnover rate [2] 155.9% 103.6% 167.7% 139.9% 83.8% 71.7%
=========== ======== =========== ========= =========== ========
[1] Not annualized for the period August 5, 1994 to June 30, 1995.
[2} Annualized for the period August 5, 1994 to June 30, 1995.
* August 5, 1994 was commencement of operations
See accompanying notes to financial statements.
THE DATA SET FORTH ABOVE HAS BEEN EXAMINED BY COOPERS & LYBRAND L.L.P.,
INDEPENDENT ACCOUNTANTS, AND THEIR REPORT THEREON IS INCLUDED IN THE
STATEMENT OF ADDITIONAL INFORMATION. FOR FURTHER INFORMATION ABOUT THE
PERFORMANCE OF THE FUND, REFER TO THE FINANCIAL STATEMENTS CAPTION OF THE
STATEMENT OF ADDITIONAL INFORMATION.
RISK FACTORS
The Ultra-Small Company and Ultra-Small Index Portfolios invest a majority
of total assets in the common stock of very small companies. "Very small
companies" are those with market capitalization the size of the smallest
10% of those listed on the New York Stock Exchange. However, the majority
of stocks in these Portfolios are listed on NASDAQ rather than the New
York Stock Exchange. The market price of very small company shares may
exhibit greater volatility than large company shares.
The Adviser believes no other mutual funds are committed to investing
long-term in companies this small. Indeed, according to Morningstar, only
two other mutual funds have a median market capitalization as small as
Bridgeway Ultra-Small Company Portfolio, and these do not have a plan to
remain invested in companies this small. While ultra-small companies have
historically had a higher average annual return than large stocks over the
long term (25 years and more), they have also had commensurately higher
volatility. Therefore, shareholders of this portfolio are exposed to
above-average short-term risk.
On the downside, companies this small may have limited resources for
expanding or surviving in a newly competitive environment, may lack depth
of management, may have a limited product line, may lack market
"muscle," and may be more sensitive to economic downturns. On the
upside, such companies may be more maneuverable in the marketplace,
less bureaucratic, may respond quicker to changing market forces, may
see a successful product add more to "the bottom line" in percentage terms,
and if they survive an economic downturn, may "bounce back" faster.
While the Adviser attempts to limit some of the downside volatility
inherent in this asset class in the Ultra-Small Company Portfolio (only)
shareholders of both ultra-small company portfolios should expect
significantly higher short-term price volatility than that experienced
by shareholders of most other funds. The Adviser believes these Portfolios
are more appropriate as a long term investment (at least 5 years, but
ideally 10 years or more) for shareholders who can accommodate short-term
price volatility, or as a diversifier to a portfolio consisting primarily
of larger stocks. They are not appropriate investments for short-term
investors or those trying to time the market. (See "Frequent Trading of
Fund Shares" on page 15.)
The Ultra-Small Company Portfolio will remain closed to new investors as
long as the portfolio net assets exceed $27.5 million, in order to ensure
that the fund may remain actively invested in companies which the
investment adviser believes are good investment opportunities. Closing
this portfolio to new investors will result in a higher expense ratio than
would otherwise be the case. It could also result in higher volatility
since redemptions would not be offset by new purchases.
The Aggressive Growth Portfolio and the Social Responsibility Portfolio
may 1) borrow money from banks up to 50% of the net assets of the
respective portfolios, and 2) purchase and sell futures and options on
stock, index, interest rate and currency instruments, among others (see
page 5 for a fuller description). Using borrowed funds for investment
purposes is called "leveraging" and increases the risk of loss or gain in
the value of the Fund's assets and the net asset value of its shares. The
Ultra-Large 35 Index Portfolio may likewise borrow from banks, but only
for the purpose of making short-sales "against the box" (short-sales of
securities owned). This would happen only in the event a redemption would
otherwise cause a distribution of capital gains. The Aggressive Growth
Portfolio's higher turnover (more frequent trading) will expose it to
increased cost and risk.
The Aggressive Growth Portfolio may also purchase warrants, invest up to
5% of its assets in the securities of new issues or "unseasoned issues"
which have been in operation less than three years, engage in short-term
trading, invest up to 10% of its assets in foreign securities and American
Depository Receipts (ADR's) listed on American exchanges, invest any amount
less than 25% of its portfolio in a single security, invest up to 5% of
portfolio assets in a closed-end investment company, lend portfolio
securities and engage in short sale transactions either against the box or
by shorting securities of other issuers. The Social Responsibility Portfolio
may purchase the same type of securities and utilize the same investment
techniques, except that it will only enter into short sale transactions
against the box, will not invest in closed-end investment companies, and
will not lend portfolio securities. These investment techniques may subject
an investor to greater than average risks and costs.
Foreign securities may be affected by the strength of foreign currencies
relative to the U.S. dollar, or by political or economic developments in
foreign countries. Consequently, they may be more volatile than U.S.
securities. Short sale transactions, while limited to 20% of total assets
and fully collateralized by cash in segregated accounts, also represent
potentially higher risk for Aggressive Growth shareholders, since the
maximum gain is 100% of the initial collateralized amount, but there is no
theoretical maximum loss. The Aggressive Growth portfolio will maintain
cash reserves ("100% coverage") equal to the market value of any short
positions for which it does not already own shares. These cash reserves
may be invested in money market or short term Treasury securities held by
the Fund's custodian or broker or both. Shareholders of the
Aggressive Growth, Ultra-Small Index, and Ultra-Large 35 Index Portfolio
could also bear higher risk through the lending of securities. If the
borrowing broker were to become bankrupt, the Portfolio might experience
delays in recovering its assets (even though fully collateralized); the
Portfolio would bear the risk of loss from any interim change in securities
price. Collateral for securities lent will be invested in money market or
short-term Treasury securities.
Although Bridgeway Capital Management, Inc. (hereinafter referred to by
name or as the "Manager", or the "Adviser"), believes that the investment
techniques it employs to manage risk in the Aggressive Growth and Social
Responsibility Portfolios will further the Portfolios' investment
objectives and reduce losses that might otherwise occur during a time of
general decline in stock prices, no assurance can be given that these
investment techniques will achieve this result. The hedging techniques used
here would reduce losses during a time of general stock market decline, if
the Fund had previously sold futures or bought puts on stock indices or
entered into short positions in individual securities offsetting some
portion of the market risk. Thus, these Portfolios are appropriate
investments only for investors who understand the investment practices to
be employed by the Adviser and are able to accept the potential risks.
The Adviser manages no other registered investment company.
The Adviser intends to buy and sell futures, calls, and/or puts in the
Aggressive Growth and Social Responsibility Portfolios to increase or
decrease portfolio exposure to stock market, interest rate, and
currency market risk as indicated by statistical models of risk.
(The Fund will not sell "uncovered" calls.) The Adviser will use these
instruments to attempt to maintain a more constant level of risk as
measured by certain statistical indicators. In addition to the use of
futures and options for hedging as described above, the Aggressive Growth
Portfolio of the Fund may buy or sell any financial or commodity futures,
calls, or puts listed on the major exchanges (CBOT, CME, COMEX, IMM, IOM,
KCBT, MA, NYSCE, NYCTE, NYFE, or NYME), for purposes of diversification of
risk to the extent that the aggregate initial margins and premiums required
to establish such nonhedging positions do not exceed 5% of its total net
assets. Examples of such financial or commodity instruments include the
Bond Buyer Municipal Index, British Pounds, crude oil, gold, and wheat
among others. Options and futures can be volatile investments and may not
perform as expected. Potential risks associated with options and futures
include 1) leverage risk (these instruments are designed to produce
substantial value change relative to the amount invested, thus magnifying
the risk of loss as well as potential gains), 2) dependence on the
Adviser's ability to correctly predict market movement, 3) imperfect
correlation between the price of options and futures contracts and the
underlying securities being hedged, 4) the possibility of trading halts
in options and futures, 5) the possible need to defer closing out certain
hedged positions to avoid adverse tax consequences, and 6) increased
complexity of futures and options, requiring a higher level of training
for the portfolio manager and support personnel.
The Adviser's goal in the Aggressive Growth and Social Responsibility
Portfolios is to manage these various risks through diversification and
hedging strategies to achieve a reasonable return at a total risk equal to
or less than that of the stock market (as measured by certain statistical
measures over periods of three years or more). (Hereinafter, "stock market"
will mean stock market as represented by the Standard & Poor's Composite
Stock 500 Index with dividends reinvested.) No assurance can be given
that these investment techniques will achieve the objectives of higher
return or equal risk. A Portfolio's possible need to sell securities to
cover redemptions could, at times, force it to dispose of positions on a
disadvantageous basis.
The Ultra-Large 35 Index Portfolio invests on a roughly equal dollar
weighting in the 35 large capitalization stocks which comprise the
Bridgeway Ultra-Large 35 Index. (See "Investment Objectives and Policies"
on page 6 for a description of the Index.) While large companies tend to
exhibit less short-term price volatility than small stocks, historically
they have not recovered as fast from a market decline. Consequently, the
Ultra-Large 35 Index Portfolio may offer higher inflation risk
(the risk that the portfolio value will not keep up with inflation) than
the ultra-small portfolios.
INVESTMENT OBJECTIVES AND POLICIES
Bridgeway Fund, Inc. ("the Fund") is a no-load, diversified open-end
investment company or "mutual fund." The Fund is organized as a "series"
fund and has five investment portfolios, the Bridgeway Ultra-Small Company
Portfolio, the Ultra-Small Index Portfolio, the Bridgeway Aggressive Growth
Portfolio and the Bridgeway Social Responsibility Portfolio and the
Bridgeway Ultra-Large 35 Index Portfolio.
The Ultra-Small Company and Ultra-Small Index Portfolios seek to provide
total return (primarily capital appreciation but also income) by investing
at least 80% of total portfolio assets in very small companies. The
Ultra-Small Company Portfolio is actively managed, while the Ultra-Small
Index Portfolio invests passively in companies which comprise the CRSP
Cap-Based Portfolio 10 Index. (This index is more fully described in the
following paragraph.) For the purpose of measuring the 80% requirement,
"very small company" will mean companies with market capitalizations less
than the upper limit of the smallest 10% of the New York Stock Exchange
(NYSE). As of December 31, 1996 this upper limit is represented by
companies of less than $94 million market capitalization, but will
fluctuate with market prices. When investing or reinvesting portfolio
funds, the investment adviser will not purchase the securities of
companies larger than this limit unless at least 80% of the portfolio
funds invested after such purchase would be invested in very small
companies. The Ultra-Small Company and Ultra-Small Index Portfolios may
invest up to 5% of its assets in the securities of "unseasoned issuers"
which have been in operation less than three years. The Ultra-Small
Company Portfolio may also invest up to 10% of its assets in foreign
securities and ADR's listed on American exchanges. The annual portfolio
turnover rate should normally be less than 150% for the Ultra-Small
Company Portfolio and less than 30% for the Ultra-Small Index Portfolio,
but the Index Portfolio may be higher during the first two years of
operations as assets build significantly.
At a shareholder meeting on October 15, 1996, shareholders voted 1)to
close the Ultra-Small Company Portfolio to new investors any time net
assets exceed $27.5 million, 2)to allow these shareholders to invest an
additional amount equal to their previous net contributions for an
extended period, and 3)to allow employees, directors, and participants in
the pension plan of the Adviser or of the Fund to purchase any unsubscribed
shares in item 2 or shares redeemed in the Portfolio. Restricting the
number of shares outstanding will keep Portfolio assets small and will help
to ensure that the Portfolio may remain actively invested in very small
companies which the investment adviser believes offer good investment
opportunities. See "Security Selection Process" for more details of the
security selection process.
The Ultra-Small Index Portfolio seeks roughly to meet the total return of
the University of Chicago's Center for Research in Security Prices (CRSP)
Cap-Based Portfolio 10 Index by investing in a representative sample of
index companies. This Index is comprised of all common stocks listed
on the New York and American Stock Exchanges, and the Nasdaq National
Market (excluding unit investment trusts, closed-end funds, real estate
investment trusts, americus trusts, foreign stocks, and American Depository
Receipts) which are the size (market capitalization) of stocks in the
smallest 10% of the New York Stock Exchange. No other index or
passively managed mutual fund is based on an index of companies this small.
Similar to other index funds, the actual return of this portfolio will
likely underperform the an amount equal to the Portfolio expenses and
transaction costs. The adviser seeks to minimize this difference or
"tracking error" by carefully managing costs, reimbursing expenses over
0.75% annually if necessary, keeping portfolio turnover to a minimum,
strongly discouraging market timers and short term traders from investing
in the portfolio, and by the redemption fees outlined under "Redemption
Reimbursement Fees" on page 10. Because of the higher expense ratio,
higher transaction costs, and investments in only a representative sample
of index companies (the Adviser expects to own 300 or more during the
first year), the tracking error of this Portfolio will likely be greater
than that of the Ultra-Large 35 Index Portfolio. The Adviser
will consider selling the highest capitalization companies in the
Ultra-Small Index Portfolio when necessary to keep the average market
capitalization of the portfolio equal to that of the CRSP Cap-Based
Portfolio 10 Index. The Adviser will consider industry/sector
representation, as well as certain economic factors (such as price to
earnings ratios) when choosing companies to add to the Portfolio.
The Aggressive Growth Portfolio seeks to exceed the stock market total
return (primarily capital appreciation but also income) at a level of
total risk roughly equal to that of the stock market over longer periods
of time (three years or more). While the portfolio may hold some higher
dividend paying stocks, it is expected that the Portfolio will normally
have a dividend yield of less than the stock market as a whole. Thus,
investors seeking income as a major portion of total return should not
invest in this portfolio. There can, of course, be no assurance that the
objective of total return or level of risk will be realized. This
Portfolio may use bank debt primarily for leverage. Therefore, full
consideration should be given to the risks inherent in the investment
techniques that the Adviser may use as outlined in Risk Factors. Normally,
the Portfolio will invest in common stocks at a level equal to at least
100% of its net assets. Portfolio exposure to market risk will vary over
time. Using hedging strategies, the Portfolio exposure to market risk may
be negatively correlated to the market, or may be as high as 150% of the
market as measured by the estimated portfolio beta. "Negative correlation
to the market" means that if the market goes up, the value of the portfolio
goes down. A portfolio beta of 150% means that a 1% increase (decrease) in
the stock market should result in a 1.5% increase (decrease) in the
portfolio. These hedging strategies are intended to maintain a more
constant level of total risk. For example, if the investment adviser feels
the portfolio is exposed to an unusually high probability of general stock
market decline, it might sell stock index futures to offset this risk.
The portfolio turnover rate (buying and selling frequency) will likely be
higher than 100% but no more than 500%, which is higher than most
aggressive growth funds. A 500% portfolio turnover is equivalent to the
sale and repurchase of all of the securities in the portfolio five times
during the year. Consequently, the Portfolio may incur higher than average
trading costs and may incur higher shareholder taxes for non-tax deferred
accounts.
In summary, this Portfolio seeks to 1) exceed the stock market total
return 2) at a level of total risk roughly equal to the stock market
over longer periods of time. Due to the possibility of a decline in total
value, this Portfolio is not an appropriate investment for short term
investors or those who cannot assume the inherent risks. See "Security
Selection Process" for more details of the security selection process. No
form of fundamental or technical analysis, including that employed by the
Adviser, has been proven conclusively to provide a risk adjusted excess
rate of return on a consistent basis.
The Social Responsibility Portfolio seeks to exceed the stock market
total return (primarily capital appreciation but also income) at a level
of total risk roughly equal to or less than that of the stock market over
longer periods of time (three years or more) by investing in companies with
social criteria generally in line with those of its shareholders as
determined by survey. Each shareholder is entitled and encouraged to
participate in this survey by submitting a survey form when opening a new
account or anytime thereafter by requesting a new form from the Fund.
The Adviser presently ranks about 650 companies according to the following
criteria measured by the Council of Economic Priorities ("CEP"): the
company's environmental record, charitable giving record, advancement of
minorities in the workforce, community outreach, family benefits,
workplace issues, animal testing and disclosure of information. With the
exception of military contracts and animal testing, "more" is understood
to mean "better." The CEP is a New York City based not-for-profit public
interest research organization that has conducted research in the field of
corporate social responsibility for more than two decades.
After determining shareholder weights (proportional to the number of
Portfolio shares owned) of each of these criteria, the Adviser ranks each
of these companies. Thus, the rankings should proportionally reflect the
weightings of each surveyed shareholder, and could consequently change over
time. The Fund invests at least 65% of its total assets in the companies
in the top fifth of the ranking and at least 95% of its common stock
investments in the companies contained in the top half of the ranking. The
Adviser monitors CEP company ratings quarterly, or as they become
available. The social criteria may change in the future as a result of the
majority vote of the Fund's Board of Directors, or as more or different
information is made available to the Adviser. The Advisor currently
supplements CEP research with its own research on other companies using
the same 10 social criteria. The Adviser excludes or sells from the
portfolio companies which a majority of surveyed shareholders choose
to exclude. As of the date of this prospectus, the Adviser excludes
companies in the tobacco and defense industries. This Portfolio may use
bank debt for leverage and index futures and stock and index options to
hedge market risk. Using hedging strategies, the Portfolio's exposure to
market risk may be as low as 50% of the market, or as high as 150% of the
market as measured by the estimated portfolio beta. A portfolio beta of
150% means that a 1% increase (decrease) in the stock market should result
in a 1.5% increase (decrease) in the portfolio. While somewhat higher in
the first two years of operations, the turnover rate of this portfolio
should be 50% or less on an annual basis in the future.
In summary, this Portfolio seeks to 1) exceed the stock market total
return, 2) at a level of total risk roughly equal to or less than the
stock market over longer periods of time, 3) by investing in companies
with social criteria generally in line with those of its shareholders.
There can be no assurance that any of the Portfolio's objectives will be
realized. No form of fundamental or technical analysis, including that
employed by the Adviser, has been proven conclusively to provide a
risk adjusted excess rate of return on a consistent basis. Therefore,
full consideration should be given to the risks inherent in the investment
techniques that the Adviser may use as outlined in Risk Factors. See
"Security Selection Process" for more details of the security selection
process.
The Ultra-Large 35 Index Portfolio (hereinafter the "Portfolio") seeks to
meet the total return of the Bridgeway Ultra-Large 35 Index while
minimizing the distribution of capital gains and minimizing costs. This
proprietary index (hereinafter the "Index") is comprised of the 35 largest
U.S. domestic equities as of June 27, 1997, after excluding a tobacco
company and ensuring reasonable industry diversification. (See the list of
companies in the following paragraph.) Consequently, this diversified
Portfolio will invest in securities of companies larger (on average) than
any other mutual fun available as of this prospectus date. Future changes
in the Index will be made with a view toward distributing no capital gains
(first priority) and maintaining very large company size (second priority.)
Low turnover is essential to minimize the tax burden associated with
capital gains in taxable accounts. While composition of the Index is the
absolute, sole responsibility of Bridgeway Capital Management, Inc., any
potential changes would be preceded by an informal (but not necessarily
statistically significant) survey of Portfolio shareholders. A company
will be completely removed from the Index if both (a) it is no longer one
of the largest 35 U.S. companies (as described above) and (b) if it would
not create a capital gain. If a company is no longer one of the 35 largest
U.S. companies, but has appreciated in price, it will remain as a "dormant
company" in both the Index and the Portfolio. New Portfolio inflows will
not be invested in a dormant company; a dormant company's representation in
the Index will decline over time. New net Portfolio inflows are invested
in such a way as to maintain a roughly equal dollar weighting of the 35
"active" (not "dormant") companies in the Index. Composition of this
Index is thus maintained with taxable shareholders in mind. The following
35 companies comprise the Bridgeway Ultra-Large 35 Index as of July 1997.
General Electric, Coca Cola, Microsoft, Exxon, Merck, Intel, Proctor &
Gamble, International Business Machines, Johnson & Johnson, Bristol Myers
Squibb, Pfizer, Wal Mart Stores, American International Group, DuPont E.I.
DeNemours, AT&T, Pepsico, Citicorp, Hewlett Packard, SBC Communications,
Mobile, Walt Disney, Gillette, Chevron, Nationsbank, Bankamerica, Fannie
Mae, Ford, Motorola, Cisco, GTE, Oracle, General Motors, McDonalds, Bell
Atlantic, and Worldcom.
Similar to other index funds, the actual return of this portfolio will
likely underperform the Index by an amount equal to the Portfolio expenses
and transaction costs. The adviser seeks to minimize this difference or
"tracking error" by carefully managing costs, reimbursing expenses over
0.15% annually if necessary, keeping portfolio turnover and transaction
expenses to a minimum, strongly discouraging market timers and short
term traders from investing in the portfolio, and by the redemption fee
outlined under "Redemption Reimbursement Fees" (page 10). As a result of
index recomposition and some redemptions, the turnover for this
portfolio should be less than 5% annually.
SECURITY SELECTION PROCESS. In determining which securities to purchase
for the actively managed portfolios, the Adviser reviews potential
companies that meet its market capitalization, earnings history, liquidity
and other fundamental and technical criteria and then analyzes this
grouping from an industry perspective. Because different industries have
varying risk and growth characteristics depending on prevailing economic
and market conditions, valuation considerations vary. The Adviser invests
in no tobacco companies. It is expected that all or substantially all
(more than 95%), of the equity securities held by the Fund will trade on
the New York and American Stock Exchanges, and NASDAQ.
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF INVESTMENT TECHNIQUES USED:
ULTRA-SMALL ULTRA-SMALL AGGRESSIVE SOCIAL ULTRA-LARGE
COMPANY INDEX GROWTH RESPONSIBILITY 35 INDEX
<S> <C> <C> <C> <C> <C>
Borrowing (leveraging) No No Yes Yes **
Hedging No No Yes Yes No
Options (stock index) No No Yes Yes No
Futures (stock index) * * Yes Yes No
Options (other) No No Yes No No
Futures (other) No No Yes No No
Short-sales No No Yes No No
Warrants No No Yes Yes No
Foreign companies/ADR's Yes No Yes Yes No
Closed-end investment companies No No Yes No No
Lending securities No Yes Yes No Yes
New issues/Unseasoned companies Yes Yes Yes No No
High turnover Yes No Yes No No
Short-term trading Yes No Yes No No
</TABLE>
* THE ULTRA-SMALL COMPANY PORTFOLIO MAY ONLY TAKE TEMPORARY, LONG, STOCK
INDEX FUTURES POSITIONS TO OFFSET THE EFFECT OF CASH HELD FOR FUTURE
INVESTING OR FOR POTENTIAL REDEMPTIONS. NO MORE THAN 35% OF PORTFOLIO NET
ASSETS WILL BE AT RISK IN THIS LIMITED USE OF STOCK INDEX FUTURES.
** THE ULTRA-LARGE 35 PORTFOLIO INDEX WILL ONLY BORROW ON A TEMPORARY BASIS
FOR THE PURPOSE OF SELLING SHORT "AGAINST THE BOX".
<PAGE>
The equity securities in which the Fund will invest consist of common
stocks, although the Fund reserves the right to purchase securities having
characteristics of common stocks, such as convertible preferred stocks,
convertible debt securities or warrants, if such securities are deemed to
be significantly undervalued and their purchase is appropriate in
furtherance of each Portfolio's objective as determined by the Adviser.
The rating of any convertible preferred stocks, convertible debt, or other
debt securities held by the Fund will be in the highest three levels of
"investment-grade," that is, rated A or better by either Moody's Investors
Service, Inc. or Standard & Poor's Corporation, or, if unrated, judged to
be of equivalent quality as determined by the Adviser. The Fund may also
invest in the following debt securities: 1) those which are direct
obligations of the U.S. Treasury (e.g. Treasury bonds or bills), 2) those
supported by the full faith and credit of the United States (e.g. "GNMA"
certificates) and 3) those supported by the right of the issuer to borrow
from the U.S. Treasury (e.g. "FNMA" securities).
It is expected that short-term money market securities would normally
represent less than 10% of the Fund's total assets. However, in the event
future economic or financial conditions adversely affect equity securities
of the type described above, the Fund may take a temporary, defensive
investment position and invest all or part of its assets in such short-term
money market securities. These short-term instruments include securities
issued or guaranteed by the U.S. Government and agencies thereof.
DISCLAIMER--CENTER FOR RESEARCH IN
SECURITIES PRICES
Bridgeway Ultra-Small Index Portfolio is not sponsored, sold, promoted, or
endorsed by University of Chicago's Center for Research in Securities
Prices (CRSP) the organization which created and maintains the CRSP
Cap-Based Portfolio 10 Index. CRSP makes no representation or warranty,
express or implied, about the advisability of investing in securities
generally, or in any Bridgeway Fund portfolio specifically. CRSP has no
obligation or liability with respect to the Fund portfolio or its
shareholders.
REDEMPTION REIMBURSEMENT FEE
In order to minimize transaction costs and the negative tax consequences
(for taxable accounts) of high turnover, the Board of Directors may impose
a 2% redemption reimbursement fee for index portfolio shareholders who
redeem in a down market. Specifically, this fee may be imposed any time
the S&P 500 Index (without dividends) has declined more than 5% over the
previous 5 trading days. The adviser believes this redemption
reimbursement fee will discourage potential shareholders who would engage
in panic selling which increases transaction costs and capital gains
distributions.
PRINCIPAL INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which are
fundamental policies that cannot be changed without the approval of a
majority of the Fund's outstanding voting securities (as defined in the
Investment Company Act of 1940, referred to as the "1940 Act").
Each Portfolio's investment objective is such a fundamental policy. In
addition, as a matter of Fundamental policy, (i) at least 75% of each
portfolio's total assets are limited in respect of any one issuer to an
amount not greater in value than 5% of the value of the total assets of the
portfolio and to not more than 10% of the outstanding voting securities of
such issuer and (ii) no portfolio may borrow money except from banks for
temporary or emergency purposes in amounts not exceeding 10% of the
Fund's net assets. However, the Aggressive Growth and Social Responsibility
Portfolios may borrow money for investment purposes up to 50% of net assets
prior to such borrowing as described earlier. Additional information about
the Fund's fundamental policies and other investment restrictions is
contained in the Statement of Additional Information.
In addition, the Fund's operating policies preclude it from making
certain investments if thereafter more than 10% of the value of its net
assets would be so invested. The investments included in this 10% are
(i) those which are restricted, i.e. those which cannot freely be sold
for legal reasons (which the Fund does not expect to own); and
(ii) investments for which market quotations are not readily available
(which the Fund does not expect to own).
MANAGEMENT OF THE FUND
The Fund's Board of Directors decides on matters of general policy and
reviews the activities of the Fund's Adviser, and the Fund's officers
conduct and supervise its daily business operations. Bridgeway Capital
Management, Inc. (the "Adviser"), 5650 Kirby Drive, Suite 141, Houston,
Texas 77005-2443, acts as the investment adviser to the Fund, subject
to the control of the Fund's Board of Directors. The Adviser is a Texas
corporation that was organized in 1993 to act as the Fund's investment
adviser. The Adviser is controlled by its President John N. R. Montgomery
and his family. From 1985 to 1992 Mr. Montgomery gained extensive
experience managing his own investment portfolio utilizing the
techniques that he uses in managing the Portfolios of the Fund.
Mr. Montgomery is solely responsible for managing the assets of the Funds
and selecting the securities that each Portfolio will purchase and sell,
although he will be assisted by other employees who will provide him
with research assistance. He has earned graduate degrees from both the
Massachusetts Institute of Technology and Harvard Graduate School of
Business Administration. Mr. Montgomery has been a research
engineer/project manager at the Massachusetts Institute of Technology, has
served as an executive with transportation agencies in North Carolina and
Texas, and founded Bridgeway Capital Management, Inc. in July, 1993.
The Adviser is responsible for the investment and reinvestment of
the Fund's assets, provides the Fund with executive and other personnel,
office space and other facilities and administrative services, and
supervises the Fund's daily business affairs. It formulates and
implements a continuous investment program for the Fund, consistent with
the investment objective, policies and restrictions of each of its
Portfolios. Under the Management Contract with the Advisor, the
Ultra-Small Company Portfolio pays the Adviser a flat 0.9% annual
management fee, the Ultra-Small Index Portfolio pays a flat 0.5% annual
fee, and the Ultra-Large 35 Index Portfolio pays a 0.08% annual
fee, computed daily and payable monthly. However, the fee for the
Ultra-Small Company Portfolio during the period that the net assets range
from $27.5 to $55 million will be paid as if the Portfolio had $55
million under management (that is $55 million time .009 equals $495,000),
subject to a maximum 1.49% annual rate. The Ultra-Small Company
Portfolio fee is higher than the fee paid by most investment companies to
their Adviser, but lower than the average of new "micro-cap" funds. The
board of directors has determined that this fee is appropriate for this
type of "very small-cap" fund and the "ultra-small" charter.
<PAGE>
The Aggressive Growth and Social Responsibility Portfolios of the Fund pay
the Adviser a base annual management fee, computed daily and payable
monthly of 0.90% of the Fund's average daily net assets (also higher than
that paid by most investment companies), which will be adjusted upwards or
downwards by 4.67% of the difference between the investment performance of
each Portfolio and the investment performance of the Standard & Poor's
Composite 500 Stock Index (hereinafter, the "Index") over a 5 year rolling
period of time. No adjustment will be made when that difference is less
than or equal to 2%. The performance adjustment rate will range
from -.7% to +.7%. Thus, depending on portfolio performance, the
Aggressive Growth and Social Responsibility Portfolios could pay a total
annual advisory fee as low as 0.2% (among the lowest in the industry) or
as high as 1.6% (among the highest in the industry). In accordance with
the graph and table on page 10, the Fund could pay a higher fee when
both the Fund's performance and the S&P 500 Index performance are negative
(e.g. if the Fund performance were -10%, but the S&P 500 Index performance
was -13%); also the Fund could pay a lower fee when both performances were
positive (e.g. if the Fund performance was 10% but the S&P 500 Index
performance was +13%).
AGGRESSIVE GROWTH & SOCIAL RESPONSIBILITY PORTFOLIO
SAMPLE TOTAL MANAGEMENT FEES*
(BASED ON FUND RELATIVE PERFORMANCE)
FUND PERFORMANCE TOTAL MANAGEMENT
RELATIVE TO S&P 500 FEE
21.0% 1.60%
18.0% 1.60%
15.0% 1.60%
12.0% 1.46%
9.0% 1.32%
6.0% 1.18%
3.0% 1.04%
2.0% .90%
0.0% .90%
- -2.0% .90%
- -3.0% .76%
- -6.0% .62%
- -9.0% .48%
- -12.0% .34%
- -15.0% .20%
- -18.0% .20%
- -21.0% .20%
* THIS TABLE APPLIES TO THE AGGRESSIVE GROWTH AND
SOCIAL RESPONSIBILITY PORTFOLIOS ONLY.
Since the Fund does not have a five year operating history, the
performance rate adjustment will be calculated as follows during remainder
of the initial five year period of operations through September 30, 1999.
From April 30, 1995 through Sept. 30, 1999, the performance rate
adjustment fee will be calculated based upon a comparison of the
investment performance of each Portfolio and the Index over the number of
quarters that have elapsed since the Fund began operations. Each time the
performance adjustment fee is calculated, it will cover a longer time span,
until it can cover a running 5 year period as intended. In the meantime,
the early months of the transition period will have a disproportionate
effect on the performance adjustment of the fee. From July 1, 1995 to
June 30, 1996, the Ultra-Small Company, Aggressive Growth, and Social
Responsibility Portfolios waived management fees of $14,056, $8,037 and
$1,416 respectively to the Adviser.
In addition to the fees payable to the Adviser, the Fund is responsible
for its operating expenses, which include such items as interest, taxes,
legal and audit expenses, and custodian and shareholder servicing agent
fees. See Statement of Additional Information for more information as to
the Fund's Board of Directors, Officers, the Adviser and the Fund's
operating expenses.
In placing orders for the Fund's portfolio transactions, the Adviser's
policy is to seek "best execution", i.e. prompt and efficient execution at
the most favorable price. In seeking to achieve this combination, the
Adviser evaluates factors such as the overall quality and reliability of
dealers and services they provide, including general execution capability,
reliability, operational capacity and financial condition.
CODE OF ETHICS
Both the Fund and the Adviser subscribe to a mission statement which places
integrity above every other business goal. The Fund portfolio manager is
encouraged to invest in shares of the Fund and is not allowed to invest in
shares of equity securities which the Fund might also potentially own.
Other employees, officers, and directors of the Fund and the Adviser are
also encouraged to own shares of the Fund and may only trade shares of
equity securities within very stringent guidelines contained in the Code of
Ethics. Neither the Fund nor the Adviser takes part in directed brokerage
arrangements, pays soft dollar commissions or have a brokerage relationship
with any affiliated organization. Copies of the mission statement and Code
of Ethics may be obtained from the Fund. Any shareholder or potential
shareholder who feels a policy, action, or investment of the Fund or
Adviser does or may compromise the highest standards of integrity is
encouraged to call the Fund President directly at 800-661-3550.
DISTRIBUTION OF FUND SHARES
The Ultra-Small Company Portfolio is now closed to new investors, and will
remain so unless nets assets drop below $27.5 million. Shares of the other
Fund portfolios are offered at their net asset value without a sales charge
as an investment vehicle for individuals, institutions, fiduciaries and
retirement plans. The Fund reserves the right to reject any order. The
Advisor may make payments out of its capital or profits of up to 0.35% of
the average daily net assets attributable to broker/dealers or registered
representatives including retirement plan consultants, that provide
assistance in its efforts to distribute shares of the Fund. Such payments
and any other costs of distribution are made by the Advisor out of its own
resources. The Advisor is currently paying 0.35% of average net assets
(Aggressive Growth, Social Responsibility, and Ultra-Small Company
Portfolios only) at its own - not the Fund's - expense to Fidelity
Investment's Funds Network to be included in their no-transaction fee
marketplace. The Adviser may consider additional such arrangements in the
future. Any such distribution arrangement must be approved by a majority
of independent Fund directors. On October 15, 1996 shareholders approved
a 12b-1 plan whereby the Fund acts as its own distributor of its shares
and the Adviser pays all distribution expenses of the Fund.
HOW TO PURCHASE SHARES--AGGRESSIVE GROWTH AND
SOCIAL RESPONSIBILITY PORTFOLIOS
The minimum initial direct investment without a transaction fee in the
Aggressive Growth and Social Responsibility Portfolios is $2,000 for
individuals and for retirement and other employee benefit plans. (A
potential shareholder may open an account with the Fund after committing to
the automatic investment plan for a minimum 12 month period at a level of
at least $200 per month as of 6/30/97.) The minimum subsequent investment
without a transaction fee is $500. However, shares of these two portfolios
are currently also available at lower minimums (e.g. $1,000) through at
least one brokerage firm (Jack White) on a transaction basis (currently
$27 per transaction). The Fund reserves the right to reject any order.
HOW TO PURCHASE SHARES--ULTRA-SMALL INDEX AND
ULTRA-LARGE 35 INDEX PORTFOLIOS
The Ultra-Small Index and Ultra-Large 35 Index Portfolios impose
no minimum investment for shareholders who purchase shares on a fee for
transaction basis through any broker than can demonstrate a reasonably
constant flow of investments. Such brokerage firms usually impose their
own minimums in the range of $1,000 to $2,500. Currently three brokerage
firms have qualified under this plan: Jack White, Fidelity, and National
Investor Services Corp. (Waterhouse). Typical transaction fees range from
$27 to $50, but do vary and may change. Minimum initial direct investments
for purchase of Ultra-Small Index and Ultra-Large 35 Index Portfolio shares
is $1,000,000 (subject to increase by the Board of Directors), with
a $250,000 minimum additional investment.
The Fund reserves the right to reject any order.
TAX SHELTERED RETIREMENT PLANS
Shares of the Fund may be purchased for various types of retirement plans,
including Individual Retirement Plans (IRA's). For more complete
information, contact the Fund at 800-661-3550.
PURCHASE BY CHECK
Investors may purchase shares by sending a check payable to Bridgeway Fund,
Inc. together with the application form, to: Bridgeway Fund, Inc., 5650
Kirby Dr., Suite 141, Houston, TX 77005-2443, by mail or courier service,
or over night courier. Shares of the Fund will be purchased for the
account of the investor at the new asset value next determined after
receipt of the investor's application plus wire or check. Returned checks
will incur a $10 charge.
PURCHASE BY WIRE
Investors may invest in the Fund by wire only by first sending by mail or
facsimile (713-661-3587) a completed application. After receipt of the
application, investments may be wired to the Fund's custodian bank at the
following address:
Compass Bank, ABA #113010547 for credit to Bridgeway
Fund, account #70536749 and for further credit to (shareholder
name and account number or social security number).
Mail the original application to the Fund at the following address:
Bridgeway Fund, Inc., 5650 Kirby Dr., Suite 141, Houston, TX 77005-2443.
AUTOMATIC PURCHASE BY MONTHLY BANK DRAFT
You can arrange to open an account with a minimum $200 investment by
agreeing to automatically purchase $200 or more of a single Portfolio's
shares each month until at least a minimum of $2,400 is invested by sending
a canceled check from your checking account and filling out the Automatic
Investment Plan section of the new account application.
NET ASSET VALUE
The Fund's net asset value per share is determined on each day that
the New York Stock Exchange is open for trading, as of the close of
the Exchange (currently 4:00 p.m. Eastern time). Purchase orders
received or shares tendered for redemption on a day the Exchange is
open for trading prior to the close of trading on that day will be
valued at the close of trading on that day. Application for purchase
of shares and requests for redemptions of shares received after the
close of trading on the Exchange will be base on the net asset value as
determined as of the close of trading on the next day that the Exchange
is open. See "Redemption Reimbursement Fee" (page 10) for important
information on purchase and redemption fees for Ultra-Small Index
and Ultra-Large 35 Index Portfolios.
The net asset value per share of each Portfolio is the value of the
Portfolio's assets, less its liabilities, divided by the number of shares
of the Portfolio outstanding. The value of the Fund's securities is
determined on the basis of the market value of such securities.
Short-term investments maturing in less than 60 days are valued at
amortized cost unless the Board of Directors determines that it does not
represent a fair value. See the Statement of Additional Information for
further information.
HOW TO REDEEM SHARES
A shareholder wishing to redeem shares by telephone may do so if
appropriate information is supplied on the Account Registration Form. You
can redeem shares by calling the Fund at 800-661-3550 (or in Houston
661-3265) prior to the close of the New York Stock Exchange (currently
4:00 p.m. E.S.T.) to receive that day's price. The proceeds may be sent
by check to your address of record only or by wire transfer to your bank
account of record only on the next business day following your telephone
request. Wire transfers will incur a cost of $15 subtracted from the
proceeds.
A shareholder wishing to redeem shares may do so at any time by writing
or delivering written instructions in proper form to: Bridgeway Fund, Inc.,
5650 Kirby Drive, Suite 141, Houston, TX 77005-2443. Redemption requests
by fax will not be accepted. The signatures on written instructions
to redeem shares must be in the same name as the account shares, and must
have a medallion guarantee by a member of a national securities exchange or
a commercial bank. Most commercial banks are now part of the medallion
program, but not all. A medallion signature guarantee is not the same as
notarization, and an acknowledgment by a notary public is not an
acceptable substitute. Additional documents may be required from
corporations or other organizations, fiduciaries or anyone other than the
shareholder of record. Any questions concerning documents should be
directed to the Fund at 800-661-3550 (or in Houston at 661-3265).
The redemption request must specify the number of shares or dollars to
be redeemed and be signed by all registered owners with signatures
medallion guaranteed. The request will not be accepted unless it contains
all required documents in proper form, as described above. If the request
is in proper form, the shares specified will be redeemed at the net asset
value next determined after receipt of the request.
SYSTEMATIC CASH WITHDRAWAL PLAN
You can arrange to automatically redeem shares in a set monthly or
quarterly amount ($100 minimum) from your account and a check will be
automatically mailed to you. An annual charge of $20 will be deducted for
monthly amounts less than $500. Simply fill out the Systematic Cash
Withdrawal Plan section of the new account application when opening
your account or request a new form from the Fund at anytime.
FREQUENT TRADING OF FUND SHARES
Except as provided under the systematic cash withdrawal plan above, the
Fund discourages frequent redemptions or using the Fund as a short-term
trading vehicle; it is intended for long term investors. Shareholders who
make a practice of frequent buying and selling of Fund shares may not be
permitted to make additional investments in the Fund. Two times annually
is considered frequent and includes exchanges among portfolios.
PAYMENTS
Payment for shares redeemed normally will be made within seven days of
redemption and will be sent only to shareholders at the record address.
However, payment may be delayed under unusual circumstances, as specified
in the 1940 Act or as determined by the Securities and Exchange
Commission. Payment may also be delayed for any shares purchased by check
for a reasonable time (not to exceed 15 days from the purchase date)
necessary to determine that the purchase check will be honored. Payment
for redemptions above $250,000 may be made by securities in kind.
REDEMPTION OF VERY SMALL ACCOUNTS
In order to reduce the Fund's expenses, the Board of Directors is
authorized to cause the redemption of all of the shares of any shareholder
whose account has declined to a net asset value of less than $1,000, as a
result of a transfer or redemption, at the net asset value determined as
of the close of business on the business day preceding the sending of
proceeds of such redemption. The Fund will give shareholders whose shares
were being redeemed 60 days prior written notice in which to purchase
sufficient shares to avoid such redemption.
EXCHANGE PRIVILEGE
A shareholder may redeem all or any portion of his or her Portfolio shares
and use the proceeds to purchase shares of any other Portfolio offered by
the Fund. Any such redemption of shares of another Portfolio will be
effected at the respective net asset values of such Portfolio. An exchange
transaction is a sale and purchase of shares for federal income tax purposes
and may result in a capital gain or loss. The registration of both the
account from which the exchange is being made and the account to which the
exchange is made must be identical.
Exchange requests may be made in writing or by telephone. Exchange forms
may be obtained by writing or calling the Fund at 800-661-3550 (or
661-3265 in Houston). Written requests should include the account number
of both Portfolios if an account is already opened, and the amount of the
exchange. If a new account is to be opened by the exchange, the
registration must be identical to that of the original account. The Fund
reserves the right, at any time and without prior notice, to suspend, limit,
modify or terminate the exchange privilege or its use in any manner by any
person or class. In particular, since an excessive number of exchanges may
be disadvantageous to the Fund, the Fund reserves the right to terminate the
exchange privilege of any shareholder who makes four or more exchanges or
redemptions of shares in a year.
DIVIDENDS AND TAX STATUS
The Fund declares dividends from net investment income and distributions
from net capital gains annually and pays such dividends and distributions,
if any, after year end or as otherwise required for compliance with
Subchapter M of the Internal Revenue Code. All dividends and distributions
in full and fractional shares of the Fund will be reinvested based on the
record date, unless the shareholder notifies the Fund that dividends are to
be paid in cash.
The Fund expects to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies, under which all taxable
income is expected to be distributed to shareholders. If so qualified, the
Fund will not be subject to federal income taxes on its net investment
income and capital gains, if any, realized during any fiscal year which it
distributes to its shareholders, provided that at least 90% of its net
investment income earned in the fiscal year is distributed. The Fund will
be subject to a nondeductible 4% excise tax to the extent it does not
distribute by the end of any calendar year substantially all of its ordinary
income for that year and capital gain net income for the one-year period
ending on October 31 of that year, plus certain other amounts. All
dividends from net investment income together with distributions of net
short-term capital gains (collectively "income dividends") will be taxable
as ordinary income to shareholders even though paid in additional shares.
Long-term capital gains dividends will be taxable to shareholders as net
long-term capital gains, regardless of the length of time a shareholder
has owned Fund shares. Dividends and distributions are generally taxable
to shareholders in the year in which received. However, dividends and
distributions in January of any calendar year will be treated for tax
purposes as if received in the prior calendar year on the record date for
the dividend or distribution, if the record date was in October, November
or December. The Fund will notify each shareholder after the close of the
calendar year both of the dollar amount and the tax status of that year's
dividends and distributions.
Gains realized from the sale of securities will be long or short term,
depending on the length of time owned by the Fund. The Fund may be
required to impose backup withholding at a rate of 31% from income
dividends and capital gain distributions and upon payment of redemption
proceeds if a shareholder does not comply with federal requirements
relating to the furnishing and certification of taxpayer identification
numbers and reporting of dividends.
PERFORMANCE INFORMATION
From time to time the Fund may quote its average annual return
("standardized return") in advertisements or promotional materials.
Advertisement and promotional materials reflecting standardized return
("performance advertisement") will show percentage rates reflecting the
average annual change in the value of an assumed initial investment in the
Fund of $1,000 at the end of one, five and ten year periods. If such
periods have not yet elapsed, data will be given as of the end of a shorter
period corresponding to the duration of the Fund. Standardized return
assumes the reinvestment of all dividends and capital gain distributions.
The Fund's standardized yield may be referred to in advertising and
promotional materials (all such materials are paid for by Bridgeway Capital
Management, Inc., the Fund's Advisor). The Fund's standardized yield shows
the rate of income that it earns on its investments, expressed as a
percentage of the net asset value of Fund shares. The Fund calculates
yield by determining the interest income it earned from its portfolio
investments for a specified thirty-day period (net of expenses), dividing
such income by the average number of Fund shares outstanding, and
expressing the result as an annualized percentage based on the net asset
value at the end of that thirty day period. Yield accounting methods
differ from the methods used for other accounting purposes; accordingly,
the Fund's standardized yield may not equal the dividend income actually
paid to investors or the income reported in the Fund's financial
statements. Any non-standard performance measures will be accompanied
by standard performance measures.
In addition to standardized return, performance advertisements also may
include other total return performance data ("non-standardized return").
Non standardized return may be quoted for the same or different periods as
those for which standardized return is quoted and may consist of aggregate
or average annual percentage rate of return, actual year by year rates or
any combination thereof. All data included in performance advertisements
will reflect past performance and will not necessarily be indicative of
future results. The investment return and principal value of an investment
in the Fund will fluctuate, and an investor's proceeds upon redeeming Fund
shares may be more or less than the original cost of the shares. The
Fund's annual report contains the first year performance graph and
discussion. Call 800-661-3550 for a free copy.
GENERAL INFORMATION
The Fund was incorporated in Maryland on October 19, 1993. Shareholders
are entitled to vote for each full share held (and fractional votes for
fractional shares) and may vote in the election of Directors and on other
matter submitted to meetings of shareholders. It is not contemplated
that regular annual meetings of shareholders be held. No amendment may be
made to the Articles of Incorporation without the affirmative vote of the
holders of more than 50% of the Fund's outstanding shares. The holders
of shares have no pre-emptive or conversion rights. Shares when issued
are fully paid and non-assessable. Coopers & Lybrand L.L.P. serves as
the independent auditors of the Fund. Compass Bank acts as custodian of
the Fund's assets. The Fund acts as its own accounting and shareholder
servicing agent and its own distributor. Shareholder inquiries should be
directed to the Fund at the address and telephone number indicated on the
cover page of this prospectus.
<PAGE>
INVESTMENT ADVISOR
BRIDGEWAY CAPITAL MANAGEMENT, INC.
5650 KIRBY DRIVE, SUITE 141
HOUSTON, TX. 77005-2443
CUSTODIAN
COMPASS BANK
PO BOX 4886
HOUSTON, TX. 77210
TRANSFER AGENT
BRIDGEWAY CAPITAL MANAGEMENT, INC.
5650 KIRBY DRIVE, SUITE 141
HOUSTON, TX. 77005-2443
AUDITORS
COOPERS & LYBRAND L.L.P.
1100 LOUISIANA, SUITE 4100
HOUSTON, TX. 77002
BRIDGEWAY FUND, INC.
5650 KIRBY DRIVE, SUITE 141
HOUSTON, TX. 77005-2443
713 661-3265
800 661-3550
[LOGO]
<PAGE>
BRIDGEWAY FUND, INC.
Statement of Additional Information
Dated July 20, 1997
This Statement of Additional Information is not a prospectus, and it
should be read in conjunction with the prospectus of Bridgeway Fund,
Inc. (the "Fund"), dated July 20, 1997. A copy of the prospectus
may be obtained directly from the Fund, which acts as the distributor
of its own shares, at 5650 Kirby Drive, Suite 141, Houston, Texas
77005-2443, telephone 800-661-3550 or in Houston 661-3265.
TABLE OF CONTENTS
Cross-
reference
to page in
Page the
Prospectus
Investment Objective and Policies 2 6
Risk Factors 2 3
Investment Restrictions 5 10
U.S. Government Securities 6 9
Foreign Securities 6 4
New Issues and Closed End Funds 7 4
Management 7 11
The Management Agreement 8 -
Portfolio Transactions and Brokerage 12 12
Net Asset Value 12 14
Redemption in Kind 13 15
Taxation 13 15
Performance Information 14 16
General Information 15 16
Financial Statements 16 -
1
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund was organized as a series fund with three initial portfolios
or series: Bridgeway Ultra-Small Company Portfolio, Bridgeway
Aggressive Growth Portfolio, and Bridgeway Social Responsibility
Portfolio. On July 20, 1997 the Fund added two new portfolios:
the Ultra-Small Index Portfolio and the Ultra-Large 35 Index
Portfolio. All of these Portfolios have as their investment objective
to provide total return (capital appreciation and
current income), but the Ultra-Small Company, Ultra-Small Index, and
Aggressive Growth Portfolios focus primarily on capital appreciation.
The Portfolios' investment policies are described in the Fund's prospectus.
The Adviser uses hedging strategies to vary the Aggressive Growth and
Social Responsibility Portfolios' exposure to market risk. The
Adviser currently measures market risk by estimating future "betas"
based on the historical betas of individual stocks which make up the
portfolio. Beta is a measure of market risk contained within the body
of financial research called modern portfolio theory. A portfolio
beta of 150% means that a 1% increase (decrease) in the stock market
should result in a 1.5% increase (decrease) in the portfolio.
The Adviser may use up to 5% of the Aggressive Growth Portfolio's net
assets to establish positions in commodities futures and options,
except that the aggregate initial margins and premiums required to
establish such positions in any one commodity may not exceed 2% of net
assets. Subject to these two limiting constraints and applicable
laws, this portfolio (only) may invest in commodity futures and
options for the purpose of diversification in line with the stated
portfolio objective.
The Ultra-Small Company and Ultra-Small Index Portfolios may take temporary,
long, stock index futures positions to offset the effect of cash held for
future investing or for potential redemptions. For example, assume the fund
were 96% invested in stocks and 4% in cash, and it wanted to maintain
100% exposure to market risk, but wanted to defer investment of this
4% to a future date. Then the Portfolio could take a long position in
stock index futures such that the underlying value of securities
represented by the futures did not exceed either the amount of
portfolio cash or 35% of Portfolio total assets.
RISK FACTORS
A discussion of risk for each of the three Fund portfolios appears on
pages 3-5 of the prospectus. Because the Ultra-Small Company
Portfolio invests in stocks smaller than those generally available
through mutual funds, the following gives more detailed insights into
their risk and return characteristics. These statistics are based on
the historical record of these financial instruments (asset classes)
and are not the record of the Fund itself. The return numbers include
reinvested interest and dividends, but do not include trading or
operational costs, which a mutual fund would incur. The source of
these data (which is used here by permission) is the Center for
Research in Securities Prices (CRSP) Cap-Based 10 Portfolio, and
Ibbotson Associates, Stocks, Bonds, Bills, and Inflation, 1997 Yearbook.
Short-term Risk
Table A below indicates that the short-term volatility of Ultra-Small
stocks as represented by CRSP Cap-Based 10 Portfolio is much higher than
that exhibited by large stocks, bonds, or Treasury Bills. Investors
normally think of investments which exhibit low short-term volatility
as "safe" or "conservative." Because of high volatility, it would be
unwise to invest any money in ultra-small stocks (or even in large stocks)
which an investor needs in a one year timeframe. Thus, much more so than
other common stock mutual funds, it would be inappropriate to invest money
which one needs in the immediate future in Bridgeway's Ultra-Small Company
or Bridgeway's Ultra-Small Index Portfolio.
<PAGE>
Table A also indicates that over longer time periods, investors have
been compensated for higher short-term risk with commensurately higher
returns.
<TABLE>
<CAPTION>
Table A
Short-term Risk Characteristics of Various Asset Classes
(1926-1996)
Govt. Corp. Large Small Ultra-Small
T-Bills Bonds Bonds Stocks Stocks Stocks
<S> <C> <C> <C> <C> <C> <C>
Avg. Annual Return 3.6% 5.0% 5.6% 10.7% 12.6% 13.9%
Std. Deviation 3.3% 8.7% 8.5% 20.3% 34.1% 46.9%
Beta NA NA NA 1.0 1.4 1.7
Worst year decline NA -9.2% -8.1% -43.3% -58.0% -45.2%
Worst year (1940-1996) NA -9.6% -8.1% -26.5% -30.9% -27.8%
% of 1-year declines 0% 28% 23% 29% 30% 30%
% of 3-year declines 0% 15% 13% 13% 21% 18%
% of 5-year declines 0% 9% 5% 11% 14% 14%
% of 10-year declines 0% 2% 0% 3% 3% 0%
</TABLE>
Long-term Risk
While most of the statistics on Table A are intuitive (an investor
generally obtains higher returns only when taking on more risk), there
are some surprising risk characteristics of the asset classes over the
longer timeframes. Assets which appear "safe" over the short-term are
particularly vulnerable to the effects of inflation in the long-term.
Table B presents the worst 16-year cumulative inflation adjusted return
for each of these assets along with the percentage of 16-year periods
from 1926 to 1996 for which returns did not keep up with inflation. On
this basis, stocks do better than T-Bills and bonds, but ultra-small stocks
especially shine. While ultra-small stocks have historically declined
farther in a downturn, they have also generally come back faster after a
decline. However, past performance may not be predictive of future results.
Our overall conclusion is that ultra-small stocks may be too risky for
short-term investments, but are an excellent hedge against long-term
inflation for an investor willing to put up with the year-to-year
volatility one will inevitably experience over any 16-year period.
<PAGE>
<TABLE>
<Captions>
Table B
Long-term Risk Characteristics of Various Asset Classes
ADJUSTED FOR INFLATION (1926-1996)
Govt. Corp. Large Small Ultra-Small
T-Bills Bonds Bonds Stocks Stocks Stocks
<S> <C> <C> <C> <C> <C> <C>
Worst 16-year period -43.9% -49.4% -46.3% -14.6% -4.5% +10.0%
% 16-year declines 28.0% 46.0% 35.0% 1.0% 1.0% 0.0%
</TABLE>
Graphs One, Two, and Three present this similar data from yet
another viewpoint. Graph One shows both the higher historical return
and greater volatility for ultra-small stocks versus these other asset
classes. Graph Two presents the average annual return of stocks of
the New York Stock Exchange from smallest size (category "1") to
largest size (category "10") for the same period 1926 to 1996. Graph
Three indicates the higher volatility of annual returns for the ultra-
small stocks and the same ten stock size categories as Graph Two.
According to data from Morningstar and Value Line, most
"large cap" mutual funds have market capitalizations in the 9th and 10th
size categories. Most "small cap" mutual funds have market
capitalizations in the 4th through 6th size categories. Bridgeway
Ultra-Small Company and Bridgeway's Ultra-Small Index Portfolios invest
in stocks the size of the smallest category.
<PAGE>
<TABLE>
<CAPTION>
ALL DATA SOURCE DATA IN THESE THREE GRAPHS IS COPYRIGHT PROTECTED. USED WITH
PERMISSION FROM IBBOTSON ASSOCIATES AND CRSP.
EDGAR REPRESENTATION: Graph One--Growth of $1 Invested in 1926 (in dollars)
Ultra- Small Large Govt.
Year Small Stocks Stocks Bonds T-Bills
<S> <C> <C> <C> <C> <C>
1996 10,571 4,496 1,371 34 14
Graph one shows the growth of five different investments over the last seven decades. The top line
(ultra-small stocks) shows the greatest growth over the whole period, but also bigger "dips" in
periods of economic downturn and more variability/volatility proceeding across time (the "x-axis").
Next in order of decreasing long-term returns and decreasing volatility are small stocks, large
stocks, government bonds, and T-Bills. The T-Bill line shows extremely steady, but mild growth over
the full period.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALL DATA SOURCE DATA IN THESE GRAPHS IS COPYRIGHT PROTECTED. USED WITH
PERMISSION FROM IBBOTSON ASSOCIATES AND CRSP.
EDGAR REPRESENTATION: Graph Two--Avg. Annual Returns
Avg. Annual Returns by Size (1926-1996)
Avg.
Annual
Size of Co. Return
<S> <C>
Ultra-Small 16.4%
2 12.9%
3 11.5%
4 12.1%
5 11.5%
6 11.8%
7 11.8%
8 10.5%
9 10.9%
Large 9.0%
Graph two shows company size across the x-axis, going from ultra-small on the left to large on the
right. The y-axis is average annual return for the seven decades of data. The average annual
returns are highest for ultra-small companies on the left side of the graph and generally decline as
companies increase in size on the right.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALL DATA SOURCE DATA IN THESE GRAPHS IS COPYRIGHT PROTECTED. USED WITH
PERMISSION FROM IBBOTSON ASSOCIATES AND CRSP.
EDGAR REPRESENTATION: Graph Three--Short-term Volatility by Size (1926-1996)
Standard
Dev. of
Annual
Size of Co. Returns
<S> <C>
Ultra-Small 46.9%
2 37.8%
3 34.9%
4 31.2%
5 28.6%
6 29.6%
7 26.7%
8 24.3%
9 22.5%
Large 18.9%
Graph three shows company size across the x-axis, going from ultra-small on the left to large on the
right. The y-axis is standard deviation of annual returns for the seven decades of data. The
standard deviation is highest for ultra-small companies on the left side of the graph and generally
declines as companies increase in size on the right.
</TABLE>
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions (in addition to those
indicated in its prospectus) as fundamental policies, which may not be
changed without the favorable vote of the holders of a "majority," as
defined in the Investment Company Act of 1940 (the "1940 Act"), of the
Fund's outstanding voting securities. Under the 1940 Act, the vote of
the holders of a majority of a Fund's outstanding voting securities
means the vote of the holders of the lesser of (i) 67% of the shares
of the Fund represented at a meeting at which the holders of more than
50% of its outstanding shares are represented or (ii) more than 50% of
the outstanding shares.
As indicated in the following list, the Fund's three portfolios may
not:
1. Purchase securities on margin, except such short-term credits
as may be necessary for the clearance of transactions.
2. Make short sales of securities or maintain a short position
if such sales or positions exceed 20% of total assets under
management.
3. Issue senior securities, except that the Aggressive Growth
and Social Responsibility Portfolios may borrow on a secured or
unsecured basis from banks up to 50% of net assets (not including the
amount borrowed) for the purchase of securities, and any Portfolio may
borrow on a secured or unsecured basis from banks up to 5% of its
total assets on an unsecured basis from banks for temporary or
emergency purposes. In addition, the Ultra-Large 35 Index Portfolio
may borrow from banks up to 50% of net assets for the purpose of selling
a security short "against the box" on a temporary basis to avoid capital
gains distributions.
4. Invest in options or futures if the aggregate initial margins
and premiums required to establish such non-hedging positions exceed
5% of net assets. In addition, the Ultra-Small Company, Ultra-Small
Index, and Ultra-Large 35 Index Portfolios may not invest in any
options and may invest in stock market index futures only as described in
the Prospectus.
5. Invest in options or futures on individual commodities if
the aggregate initial margins and premiums required to establish such
positions exceed 2% of net assets. In addition, only the Aggressive
Growth Portfolio may invest in any commodity options or futures.
6. Buy or sell real estate, real estate limited partnership
interests or other interest in real estate (although it may purchase
and sell securities which are secured by real estate and securities or
companies which invest or deal in real estate.)
7. Make loans (except for purchases of publicly-traded debt
securities consistent with the Fund's investment policies); however, the
Aggressive Growth, Ultra-Small Index, and Ultra-Large 35 Index
Portfolios may lend its portfolio securities to others on a fully
collateralized basis.
8. Make investments for the purpose of exercising control or
management.
9. Act as underwriter (except to the extent the Fund may be
deemed to be an underwriter in connection with the sale of securities
in the Fund's investment portfolio.) (This restriction in no way
prevents the Fund from acting as distributor of its own shares
pursuant to a 12b-1 Plan adopted by shareholders on October 15, 1996.)
10. Invest 25% or more of its total assets (calculated at the
time of purchase and taken at market value) in any one industry.
11. As to 75% of the value of its total assets, invest more than
5% of the value of its total assets in the securities of any one
issuer (other than obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities), or purchase more than
10% of all outstanding voting securities of any one issuer.
The Fund observes the following restrictions as a matter of operating
but not fundamental policy, pursuant to positions taken by federal and
state regulatory authorities:
The Fund may not:
12. Purchase any security if as a result the Fund would then hold
more than 10% of any class of securities of an issuer (taking all
common stock issues as a single class, all preferred stock issues as a
single class, and all debt issues as a single class).
13. Invest in securities of any issuer if, to the knowledge of
the Fund, any officer or director of the Fund or of the Adviser owns
more than 1/2 of 1% of the outstanding securities of such issuer, and
such directors who own more than 1/2 of 1% own in the aggregate more
than 5% of the outstanding securities of such issuer.
14. Invest more than 5% of the value of its net assets in
warrants (included in that amount, but not to exceed 2% of the value
of the Fund's net assets, may be warrants which are not listed on the
New York or American Stock Exchange). In addition, the Ultra-Small
Company, Ultra-Small Index, and Ultra-Large 35 Index Portfolios
may not purchase any warrants.
15. Invest in any security if as a result the Fund would have
more than 5% of its total assets invested in securities of companies
which together with any predecessor have been in continuous operation
for fewer than three years.
16. Invest in oil, gas or mineral related programs, partnerships
or leases.
17. Invest in securities of any open-end investment company as
long as its securities are registered for sale in the State of
California or held by California residents; unless, however, both a)
any such investment does not include the payment of any sales load or
sales charges and b) the Fund's investment adviser does not charge any
management fee on the balances held in any such investment. The Fund
may, however, invest cash in a money market fund for potential
redemptions, awaiting reinvestment, or as a temporary defensive move.
U.S. GOVERNMENT SECURITIES
The U.S. Government securities in which the Fund may invest include
direct obligations of the U.S. Treasury, such as Treasury bills, notes
and bonds, and obligations issued or guaranteed by U.S. Government
agencies and instrumentalities, including securities that are
supported by the full faith and credit of the United States, such as
Government National Mortgage Association ("GNMA") certificates,
securities that are supported by the right of the issuer to borrow
from the U.S. Treasury, such as securities of the Federal Home Loan
Banks, and securities solely by the credit worthiness of the issuer,
such as Federal National Mortgage Association ("FNMA") and Federal
Home Loan Mortgage Corporation ("FHLMC") securities.
FOREIGN SECURITIES
The Fund may invest up to 10% of its assets in foreign securities
traded on Exchanges in the United States. Foreign securities carry
incremental risk associated with: (1) currency fluctuations; (2)
restrictions on, and costs associated with, the exchange of
currencies; (3) the difficulty in obtaining or enforcing a court
judgment abroad; (4) reduced levels of publicly available information
concerning issuers; (5) restrictions on foreign investment in other
jurisdictions; (6) reduced levels of governmental regulation of
foreign securities markets; (7) difficulties in transaction
settlements and the effect of this delay on shareholder equity; (9)
foreign withholding taxes; (10) political, economic, and similar
risks, including expropriation and nationalization; (11) different
accounting, auditing, and financial standards; (12) price volatility;
and 13) reduced liquidity in foreign markets where the securities also
trade. While some of these risks are reduced by investing only in
ADR's and foreign securities listed on American exchanges, even these
foreign securities may carry substantial incremental risk.
NEW ISSUES AND CLOSED END FUNDS
The Fund may invest up to 5% of total assets in the securities of
"unseasoned issuers". These companies have less historical data on
which to evaluate past performance, are usually small companies, and
thus may exhibit higher volatility and risk than other issues. The
Fund may also invest up to 5% of total assets in closed end mutual
funds. These securities may sell at a premium or discount to the net
asset value of their underlying securities. While gaining further
diversification through such investments, the Fund will bear the
additional volatility and risk that, in addition to changes in value
of the underlying securities in the closed end funds, there may be
additional increase or decrease in price due to a change in the
premium or discount in their market prices.
MANAGEMENT
The overall management of the business and affairs of the Fund in
vested with its Board of Directors. The Board approves all
significant agreements between the Fund and persons or companies
furnishing services to it, including the Fund's agreement with its
Adviser, Custodian and Transfer Agent. The day to day operations of
the Fund are delegated to its officers, subject to the investment
objectives and policies of the Fund and to general supervision by the
Board of Directors.
<PAGE>
The directors and officers of the Fund and of the Adviser, their
business address and principal occupations during the past five years
are
Position
with the Principal Occupation
Fund
John N.R. President President of the Fund and
Montgomery* and the Adviser, self employed
Director from 12/1991 to 7/1993.
Prior to that he was an
executive with
transportation agencies in
Texas and N. Carolina and
an engineer/project manager
at MIT.
Karen S. Gerstner Director Attorney and managing
partner, Dinkins Kelly
Lenox Gerstner & Lamb, LLP
Houston, Texas.
Miles Douglas Director Vice President, Wood,
Harper,III Harper, PC, a CPA firm in
Houston, Texas, since
2/1991, Senior Staff
Accountant Pannell Kerr &
Forster 1990-91, Senior
Staff Accountant, Price
Waterhouse 1986-90.
Glen Feagins Treasurer Vice-President/Treasurer of
another mutual fund family
from 1987 to 1992. Self-
employed consultant in the
mutual fund industry and
employee of Bridgeway Capital
Management since 1994.
Joanna Schima Secretary Owner of small business
1988-1993, prior to that,
Telecommunications Manager
for American Capital
Management & Research,
Inc., Houston, Texas
*denotes directors who are "interested persons" of the Fund under the
1940 Act.
The address of all of the Directors and Officers of the Fund is 5650
Kirby Drive, Suite 141, Houston, Texas, 77005-2443.
The Fund pays fees of $350 per meeting to directors who are not
"interested persons" of the Fund. Such directors are reimbursed for
any expenses incurred in attending meetings. During fiscal year 1996,
the directors received the following compensation:
<TABLE>
<CAPTION>
Aggregate Pension or Estimated Annual Total
Compensation Retirement Benefits Upon Compensation
Name of Director from Fund Benefits Accrued Retirement from the Fund
<S> <C> <C> <C> <C>
Karen Gerstner $1,200 N/A N/A $1,200 /1/
Miles Douglas
Harper, III $1,200 N/A N/A $1,200 /1/
John N.R.
Montgomery $ 0 N/A N/A $ 0
/1/ The directors received this compensation in the form of shares of the
Fund, credited to his or her account.
</TABLE>
THE MANAGEMENT AGREEMENT
Subject to the supervision of the Board of Directors, investment
advisory, management and administration services are provided to the
Fund by Bridgeway Capital Management, Inc., (the "Adviser") pursuant
to an Investment Management Agreement dated May 26, 1994 as amended on
September 4, 1996 (the "Agreement"). A second Investment Management Agreement
dated May 26, 1997 addresses management of the new portfolios (i.e. the
Ultra-Small Index Portfolio and the Ultra-Large 35 Index Portfolio).
The Adviser is a Texas corporation organized in 1993 to act as Adviser to
the Fund and is controlled by Mr. John N. R. Montgomery and his family.
Under both Agreements, the Adviser will provide a continuous investment
program for the Fund and make decisions and place orders to buy, sell
or hold particular securities. The Adviser also will supervise all
matters relating to the operation of the Fund and will obtain for it
corporate officers, clerical staff, office space, equipment and
services.
As compensation for Adviser services rendered to the Ultra-Small Index and
Ultra-Large 35 Index Portfolios, and the charges and expenses assumed
and to be paid by the adviser as described above, these Portfolios pay
the Adviser a base fee computed and payable on or promptly after the last
market day of each month at the following annual rate:
.5% of the value of the Ultra-Small Index Portfolio's
average daily net assets and
.08% of the value of the Ultra-Large 35 Index Portfolio's
average daily net assets
As compensation for its services rendered and the charges and expenses
assumed and to be paid by the Adviser as described above, the Aggressive
Growth, Social Responsibility, and Ultra-Small Company Portfolios
pays the Adviser a base fee computed and payable promptly after the last
market day of each month at the following annual rate:
.9% of the value of the Portfolio's average daily net assets
during such month up to $250,000,000;
.875% of the next $250,000,000 of such assets; and
.85% of such assets over $500,000,000,
except that the fee for the Ultra-Small Company Portfolio during the
period that the Portfolio's net assets range from $27.5 million to $55
million will be paid as if the Portfolio had $55,000,000 under
management (that is, $55 million times .009 equals $495,000), subject
to a maximum 1.49% annual rate.
For purposes of calculating such fee, average daily net assets shall
be computed by adding the total asset values less liabilities of each
Portfolio as computed by the Adviser each day (during the month and
dividing the resulting total by the number of days in the month).
Expenses and fees of each Portfolio, including the advisory fee, will
be accrued daily and taken into account in determining net asset
value. For any period less than a full month during which this
agreement is in effect, the fee shall be prorated according to the
proportion which such period bears to a full month.
The Aggressive Growth and Social Responsibility Portfolio base fee
described above will be adjusted each quarterly period (as defined
below) by adding to or subtracting from such rate, when appropriate,
the applicable performance adjustment rate percentage as described
below. The resulting advisory fee rate will then be applied to the
average daily net asset value of the Fund for the succeeding quarterly
period. The advisory fee will be paid monthly and will be one-twelfth
(1/12th) of the resulting dollar figure.
The performance adjustment rate shall vary with the Fund's performance
as compared to the performance of the Standard & Poor's 500 Composite
Stock Price Index with dividends reinvested (hereinafter "Index" or "S
& P 500 Index") and will range from -.7% to +.7%; the performance rate
adjustment will be calculated at 4.76% of the difference between the
performance of the Fund and that of the Index, except that there will
be no performance adjustment if the difference between the Fund
performance and the Index performance is less than or equal to 2%.
The graph and table in the Prospectus (see "Management of the Fund")
illustrate the relationship between the advisory fee and the fund
performance relative to the Index.
The performance period shall consist of the most recent five year
period ending on the last day of the quarter (March, June, September,
and December) that the New York Stock Exchange was open for trading.
For example, on February 15, 2000, the relevant five year period would
be from Friday, December 30, 1994 through Friday, December 31, 1999.
The performance of the Index will be the 5 year percentage increase
(or decrease) in the capitalization weighted S & P 500 Index with
dividends reinvested. The Fund performance will be the percentage
increase (or decrease) of the portfolio net asset value per share over
the performance period and will be calculated as the sum of: 1) the
change in the portfolio unit value during such period, 2) the unit
value of portfolio distributions from income or capital gains (long or
short term) having an ex-dividend date occurring within the
performance period and assumed to have been reinvested at the net
asset value on ex-date, and 3) the unit value of capital gains taxes
paid or accrued during the performance period of undistributed
realized capital gains, if any. Thus, the Fund performance will be in
accordance with SEC standardized total return formula.
The adjustment to the Basic Advisory Fee will not be cumulative. An
increased fee will result even though the performance of the Fund over
some period of time shorter than the Performance Period has been
behind that of the Index and, conversely, a reduction in the Basic
Advisory Fee will be made for a month even though the performance of
the Fund over some period of time shorter than the performance Period
has been ahead of that of the Index.
As indicated above, the Fund's expenses (including the monthly Basic
Advisory fee) will be accrued daily. The performance adjustment for
each performance fee period will be computed monthly and accrued daily
in the subsequent monthly period and taken into account in computing
the daily net asset value of a Fund Portfolio's share. However, the
expenses in excess of any maximum expense limitation that is assumed
by the Fund's Adviser, if any, shall not be accrued for the purpose of
computing the daily net asset value of a Fund share.
Since the Fund does not have a five year operating history, the
performance rate adjustment will be calculated as follows during the
initial five year period.
(a) From Fund inception through April 30, 1995, the
performance rate adjustment was not operative. The advisory
fee payable was the base fee only.
(b) From April 30, 1995 through September 30, 1999, the
performance rate adjustment fee will be calculated based upon
a comparison of the investment performance of each Portfolio
and the Index over the number of quarters that have elapsed
since the Fund began operations. Each time the performance
adjustment fee is calculated, it will cover a longer time
span, until it can cover a running five year period as
intended. In the meantime, the early months of the transition
period will have a disproportionate effect on the performance
adjustment of the fee.
During the period from July 1, 1995 through June 30, 1996 and in
accordance with the management fee schedules described above, the
Adviser received the following advisory fees from each of the
Portfolios:
<TABLE>
<CAPTION>
Advisory Fee Expense Waived Waived
Portfolio Per Contract Reimbursement Advis. Fees Accounting Fee
<S> <C> <C> <C> <C>
Ultra-Small Company $14,056 ($0) ($14,056) ($3,369)
Aggressive Growth $8,037 ($9,579) ($8,037) ($10,090)
Social Responsibility $1,416 ($21,098) ($1,416) ($10,090)
</TABLE>
The Net Advisory Fees were paid at the end of each quarter after the
earned fee was adjusted for any expense overage in accordance with the
Adviser's undertaking that "total Fund Operating Expenses would not
exceed 2.5%." This is in accordance with Rule 260.140.85(a) of the
California Code of Regulations dealing with expense limitations which
the Fund has undertaken to comply with. The Adviser has been and is,
as of the date of this prospectus, voluntarily reimbursing the Fund to
maintain an expense ratio of 2.0%, 2.0% and 1.5% for the Ultra-Small
Company, Aggressive Growth and Social Responsibility Portfolios,
respectively.
In addition to the fee payable to the Adviser, the Fund is responsible
for its operating expenses, including: (1) the charges and expenses of
any custodian or depository appointed by the Fund for the safekeeping
of its cash, securities and other property, (2) the charges and
expenses of bookkeeping personnel, auditors, and accountants, computer
services and record keeping, (3) the charges and expenses of any
transfer agents and registrars appointed by the Fund, (4) brokers'
commissions and issue and transfer taxes chargeable to the Fund in
connection with securities transactions to which the Fund is a party,
(5) all taxes and corporate fees payable by the Fund to federal, state
or other government agencies, (6) the cost of stock certificates (if
any) representing shares of the Fund, (7) fees and expenses involved
in registering and maintaining registrations of the Fund and of its
shares with the Securities and Exchange Commission and qualifying its
shares under state or other securities laws, including the preparation
and printing of prospectuses used for these purposes and for
shareholders of the Fund, (8) all expenses of shareholders' and
directors' meetings and of preparing and printing reports to
shareholders, (9) charges and expenses of legal counsel for the Fund
in connection with legal matters relating to the Fund, including
without limitation, legal services rendered in connection with the
Fund's corporate existence, corporate and financial structure and
relations with its shareholders, registrations and qualifications of
securities under federal, state and other laws, issues of securities
and expenses which the Fund has herein assumed, (10) compensation of
directors who are not interested persons of the Adviser, (11) interest
expense, (12) insurance expense, and (13) association membership dues.
Under the Agreement, the Adviser will not be liable to the Fund for
any error of judgment by the Adviser or any loss sustained by the Fund
except in the case of a breach of fiduciary duty with respect to the
receipt of compensation for services (in which case any award of
damages will be limited as provided in the 1940 Act) or of willful
misfeasance, bad faith, gross negligence or reckless disregard of
duty.
The Fund acts as the distributor of its shares pursuant to a 12b-1
Plan expected to be adopted by shareholders on October 15, 1996. The
cost of distributing shares of the Fund is borne by the Adviser at no
cost to the Fund; thus, there is no "12b-1 fee."
The Agreement was first approved by the Board of Directors on January
17, 1994 and amended on September 4, 1996 by a majority of the
Directors who neither are interested persons of the Fund nor have any
direct or indirect financial interest in the Agreement or any other
agreement related thereto ("Independent Directors"). The current
contract continues through June 30, 1997. If not terminated, the
Agreement will continue automatically for successive annual periods,
provided that such continuance is specifically approved at least
annually (i) by a majority vote of the independent Directors cast in
person at a meeting called for the purpose of voting on such approval,
and (ii) by the Board of directors or by vote of a majority of the
outstanding voting securities of the Fund. It's continuance was
approved by unanimous vote of the Board of Directors, including a
majority of directors not considered "interested persons" as defined
in the 1940 Act, at a meeting held in person on May 3, 1995.
The Agreement is terminable by vote of the board of directors or by
the holders of a majority of the outstanding voting securities of a
Fund Portfolio at any time without penalty, on 60 days written notice
to the Adviser. The Agreement also may be terminated by the Adviser
on 60 days written notice to the Fund. The Agreement terminates
automatically upon its assignment (as defined in the 1940 Act).
In addition to the stringent code of ethics described on page 11 of
the prospectus, the Adviser has a unique mission statement which sets
it apart from others in the industry:
Our mission is to:
- oppose and alleviate the effects of genocide and
oppression,
- support Christian service,
- nurture educational causes, and
- improve the quality of urban life.
Our role in this effort is primarily, but not exclusively, a
financial one. As stewards of others' money, we strive to:
- uphold the highest standards of integrity.
- maintain a long term risk-adjusted investment perfor-
mance record in the top 5% of investment advisers,*
- provide extraordinary service quality,
- achieve a superior (efficient) cost structure,
and
Our greatest resource is people. Recognizing this, we strive to:
- create a positive, fun, and challenging atmosphere,
- provide fair compensation commensurate with
performance,
- give regular, peer feedback,
- spend resources lavishly on hiring and training, and
- value the family.
*The Adviser can not promise future performance levels, nor do past
results guarantee future returns. However, the Adviser and the Fund
have committed to clearly communicating performance versus industry
benchmarks in each quarterly report to shareholders.
The Adviser is also committed to donating a majority of its own
investment advisory fee profits to charitable and non-profit
organizations. To maximize this objective, the adviser seeks a
superior cost structure. There are no expensive perks or luxurious
offices. The quantitative investment methods used do not require a
large research staff. Employees are paid commensurate with
performance and market salary scales, but subject to the following
cap: the total compensation of the highest paid employee can not be
more than seven times that of the lowest paid employee. These
policies should also contribute to lower Fund expense ratios as assets
grow.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Agreement states that in connection with its duties to arrange for
the purchase and the sale of securities held in the portfolio of the
Fund, the Adviser shall select such broker-dealers ("brokers") as
shall, in its judgment, achieve the policy of "best execution", i.e.,
prompt and efficient execution at the most favorable securities price.
In making such selection, the Adviser is authorized by the Agreement
to consider the reliability, integrity and financial condition of the
broker. The Adviser also is authorized by the Agreement to consider
whether the broker provides research or statistical information to the
Fund and/or other accounts of the Adviser.
The Agreement states that the commissions paid to brokers may be
higher than another broker would have charged if a good faith
determination is made by the Adviser that the commission is reasonable
in relation to the services provided, viewed in terms of either that
particular transaction or the Adviser's overall responsibilities as to
the accounts as to which it exercises investment discretion and that the
Adviser shall use its judgment in relation to the value of brokerage
and research services provided and need not place or attempt to place
a specific dollar value on such services or on the portion of
commission that such determinations were in good faith, and to show
the overall reasonableness of commission paid, the Adviser shall be
prepared to show that commissions paid (i) were for services
contemplated by the Agreement; and (ii) were for products or services
which provide lawful and appropriate assistance to its decision-making
process; and (iii) were within a reasonable range as compared to the
rates charged by brokers to other institutional investors as such
rates may become known from available information.
The research services discussed above may be in written form or
through direct contact with individuals and may include information as
to particular companies and securities as well as market, economic or
institutional areas and information assisting the Fund in the
valuation of its investments. The research which the Adviser receives
for the Fund's brokerage commissions, whether or not useful to the
Fund, may be useful to it in managing the accounts of its other
advisory clients, if any. Similarly, the research received for the
commissions of such accounts may be useful to the Fund. In its last
fiscal year ending June 30, 1996, the Fund's Portfolios paid brokerage
commissions totaling $22,431, as follows:
<TABLE>
<CAPTION>
Brokerage
Portfolio Commissions Paid
<S> <C>
Aggressive Growth $ 5,869
Social Responsibility $ 233
Ultra-Small Company $16,329
</TABLE>
Since the Adviser's present policy is to conduct all of its own
financial research and not to pay soft dollar commissions of any kind,
brokerage decisions are currently made on the basis of price and
execution only.
NET ASSET VALUE
The net asset value of the Fund's shares will fluctuate and is
determined as of the close of trading on the New York Stock Exchange
(currently 4:00 p.m. Eastern time) each business day that the Exchange
is open for business. The Exchange annually announces the days on
which it will not be open for trading. The most recent announcement
indicates that it will not be open on the following days: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. However, the Exchange
may close on days not included in that announcement.
The net asset value per share of each of the Fund's Portfolios is
computed by dividing the value of the securities held by the Portfolio
plus any cash or other assets (including interest and dividends
accrued but not yet received) minus all liabilities (including accrued
expenses) by the total number of Portfolio shares outstanding at such
time.
Portfolio securities that are principally traded on a national
securities exchange or the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") are valued at their last sale on
the exchange on which they are principally traded prior to the close
of the New York Stock Exchange or, in the absence of recorded sales,
at their current bid price (long position) or asked price (short
positions.) Other securities and assets for which market quotations
are not readily available are valued at fair value as determined in
good faith using methods approved by the Board of Directors.
REDEMPTION IN KIND
If the Board of Directors determines that it would be detrimental to
the best interests of the remaining shareholders of the Fund to make
payment wholly in cash, the Fund may pay the redemption price in part
by a distribution in kind of securities from the portfolio of the
Fund, in lieu of cash. The Fund has elected to be governed by Rule
18F-1 under the 1940 Act pursuant to which the Fund is obligated to
redeem shares solely in cash up to the lesser of $250,000 or one
percent of the net asset value of the Fund during any 90 day period
for any one shareholder. Should redemptions by any shareholder exceed
such limitation, the Fund will have the option of redeeming the excess
in cash or in kind. If shares are redeemed in kind, the redeeming
shareholder would incur brokerage costs in converting the assets into
cash.
TAXATION
For the current and all subsequent fiscal years, the Fund intends to
elect to be and to qualify for treatment as a regulated investment
company ("RIC") under Subchapter M of the Internal Revenue Code (the
"Code"). In each taxable year that the Fund so qualifies, the Fund
will be relieved of federal income tax on that part of its investment
company taxable income (consisting generally of interest and dividend
income and net short term capital gain) and net capital gain that is
distributed to shareholders. Since the Fund intends to engage in
various hedging transactions, under various provisions of the Code,
the result of such transactions may be to change the character of
recognized gains or losses, accelerate the recognition of certain
gains and losses, and defer the recognition of certain losses.
In order to qualify for treatment as an RIC, the Fund must distribute
annually to its shareholders at least 90% of its investment company
taxable income and must meet several additional requirements. They
include (1) at least 90% of the Fund's gross income each taxable year
must be derived from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of
securities or foreign currencies, or other income derived with respect
to it business of investing in securities or currencies; (2) less than
30% of the Fund's gross income each taxable year may be derived from
the sale or other disposition of securities held for less than three
months; (3) at the close of each quarter of the Fund's taxable year,
at least 50% of the value of its total assets must be represented by
cash and cash items, U.S. Government securities, securities of other
RICs and other securities, limited in respect of any one issuer, to an
amount that does not exceed 5% of the value of the Fund, and that does
not represent more than 10% of the outstanding voting securities of
such issuer; and (4) at the close of each quarter of the Fund's
taxable year, not more than 25% of the value of its assets may be
invested in securities (other than U.S. Government securities or the
securities of other RICs) of any one issuer.
The Fund will be subject to a nondeductible 4% excise tax to the
extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital
gain net income for the one-year period ending on October 31st of that
year, plus certain other amounts.
Dividends and Distributions
Dividends from the Fund's investment company taxable income (whether
paid in cash or invested in additional shares) will be taxable to
shareholders as ordinary income to the extent of the Fund's earnings
and profits. Distributions of the Fund's net capital gains (whether
paid in cash or invested in additional shares) will be taxable to
shareholders as long-term capital gain, regardless of how long they
have held their Fund shares.
Dividends declared by the Fund in October, November, or December of
any year and payable to shareholders of record on a date in one of
such months will be deemed to have been paid by the Fund and received
by the shareholders on the record date if the dividends are paid by
the Fund during the following January. Accordingly, such dividends
will be taxed to shareholders for the year in which the record date
falls.
Withholding
The Fund is required to withhold 20% of all dividends, capital gain
distributions and repurchase proceeds payable to any individuals and
certain other non corporate shareholders who do not provide the Fund
with a correct taxpayer identification number. The Fund also is required
to withhold 31% of all dividends and capital gain distributions paid
to such shareholders who otherwise are subject to backup withholding.
PERFORMANCE INFORMATION
Total Return
Average annual total return quotations, used in the Fund's advertising
and promotional material, for the 1,5 and 10 year periods (when
available) ended on the date of the most recent balance sheet included
in the registration statement are determined by finding the average
annual compounded rates of return over the 1, 5, and 10 year periods
that would equate the initial amount invested to the ending redeemable
value, by the following formula:
P((1 + T) raised to the power of n ) = ERV
where "P" equals hypothetical initial payment of $1,000; "T" equals
average annual total return; "n" equals the number of years; and "ERV"
equals the ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of the 1, 5, or 10
years periods at the end of the 1, 5, or 10 year periods (or
fractional portion thereof).
Any disclosure will also include the length of and the last day in the
period used in computing the quotation and a description of the method
by which average total return is calculated.
Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the
most recent quarter prior to submission of the advertising for
publication. Average annual total return, or "T" in the formula, is
computed by finding the average annual compounded rates of return over
the period that would equate the initial amount invested to the ending
redeemable value. Average annual total return assumes the
reinvestment of all dividends and distributions.
Yield
Annualized yield quotations based on a 30-day (or one month) period
ended on the date of the most recent balance sheet included in the
Fund's registration statement, and used in the Fund's advertising and
promotional materials are computed by dividing the net investment
income per share earned during the period by the maximum offering
price per share on the last day of the period, according to the
following formula:
YIELD = 2 [ ( ( ( (a-b) / cd) + 1) raised to the power of 6) - 1 ]
where "a" equals dividends and interest earned during the period; "b"
equals expenses accrued for the period, (net of reimbursements); "c"
equals the average daily number of shares outstanding during the
period that are entitled to receive dividends and "d" equals the
maximum offering price per share on the last day of the period.
Any such disclosure will also include the length of and the last day
in the period used in computing the quotation and a description of the
method by which yield is calculated.
Except as noted below, in determining net investment income earned
during the period ("a" in the above formula), the Fund calculates
interest earned on each debt obligation held by it during the period
by (1) computing the obligation's yield to maturity, based on the
market value of the obligation (including actual accrued interest) on
the last business day of the period or, if the obligation was
purchased during the period, the purchase price plus accrued interest;
(2) dividing the yield to maturity by 360 and multiplying
the resulting quotient by the market value of the obligation
(including actual accrued interest). Once interest earned is
calculated in this fashion for each debt obligation held by the Fund,
net investment income is then determined by totaling all such interest
earned.
For purposes of these calculations, the maturity of an obligation with
one or more call provisions is assumed to be the next date on which
the obligation reasonably can be expected to be called or, if not, the
maturity date.
Other Information
The Fund's performance data quoted in advertising and other
promotional materials represents past performance and is not intended
to predict or indicate future results. The return and principal value
of an investment in the Fund will fluctuate, and an investor's
redemption proceeds may be more or less than the original investment
amount. In advertising and promotional materials the Fund may compare
its performance with data published by Lipper Analytical Services,
Inc. ("Lipper"), Morningstar, Inc. ("Morningstar") or CDA Investment
Technologies, Inc. ("CDA"); Fund rankings and other data, such as
comparative asset, expense and fee levels, published by Lipper,
Morningstar or CDA; and advertising and comparative mutual fund data
and ratings reported in independent periodicals including, but not
limited to, The Wall Street Journal, Money, Forbes, Value Line,
Business Week, Financial Word and Barron's.
GENERAL INFORMATION
The Fund, incorporated in the State of Maryland on October 19, 1993 is
authorized to issue 1,000,000,000 shares of common stock, $.001 par
value (the "Common Stock"). Shares of the Fund, when issued, are
fully transferable and redeemable at the option of the Fund in certain
circumstances as described in the Fund's Prospectus under "How to
Redeem Shares." All Fund shares are equal as to earnings, assets, and
voting privileges. There are no conversion, pre-emptive or other
subscription rights. Under the Fund's Articles of Incorporation, the
Board of Directors may authorize the creation of additional series of
common stock, with such preferences, privileges, limitations and
voting and dividend rights as the Board may determine. Each share of
each series of the Fund's outstanding shares is entitled to share
equally in dividends and other distributions and in the net assets
belonging to that series of the Fund on liquidation. Accordingly, in
the event of liquidation, each share of the Fund's common stock is
entitled to its portion of all of the Fund's assets after all debts
and expenses have been paid. The shares of the Fund do not have
cumulative voting rights for the election of Directors.
It is not contemplated that regular annual meetings of shareholders
will be held. There normally will be no meetings of shareholders for
the purpose of electing directors unless and until such time as less
than a majority of the directors holding office have been elected by
shareholders, at which time the directors then in office will call a
shareholders' meeting for the election of directors. The Fund has
undertaken to afford shareholders certain rights, including the right
to call a meeting of shareholders for the purpose of voting on the
removal of one or more directors. Such removal can be effected upon
the action of two-thirds of the outstanding shares of the Fund. The
directors are required to call a meeting of shareholders for the
purpose of voting on the question of removal of any director when
requested in writing to do so by shareholders of record of not less
than 10% of the Fund's outstanding shares. The directors will then,
if requested by the applicants, mail at the applicants' expense the
applicants' communication to all other shareholders.
The following individuals own more than 5% of the outstanding shares
of each portfolio of the Fund as of June 30, 1996.
<TABLE>
<CAPTION>
Percentage Ownership
Ultra- Aggr. Social
Name Address Small Growth Respons. Total
<S> <C> <C> <C> <C> <C>
Hays, B. 2245 Maroneal 5.3% 1.9%
Houston, TX 77030
Axness, W. 7522 Live Oak Dr. 5.6% 2.7%
Humble, TX 77396
Stevens, J. D. 3139 Prescott St 7.5% 3.6%
Houston, TX 77025
Kern, K. 4444 Richmond 12.2% 5.8%
Houston, TX 77027
Technical Risks 2020 N. Memorial 6.0% 9.1% 23.6% 7.8%
Way Houston, 77007
Silard, J. 6916 Wilson Ln. 15.1% 1.9%
Bethesda, MD 20817
Montgomery, J. 3214 Tangley 7.9% 2.2%
Houston, TX 77005
Webb, J. 4211 Sunset Blvd 5.4% 0.6%
Houston, TX 77005
Gross, G. 9202 Triola Lane 16.2% 2.5%
Houston, TX 77036
Donaldson, Lufkin P.O. Box 2052 10.9% 8.3%
and Jenrette & Co. Jersey City, NJ 07303
Total above 16.9% 39.8% 8.2% 37.2%
All officers/directors 1.9% 6.2% 12.5% 3.5%
</TABLE>
FINANCIAL STATEMENTS
The Fund's 1996 Annual Report to Shareholders was mailed to
shareholders on September 13, 1996; it will be sent to any other
interested party upon written request to the Fund.
<PAGE>
BRIDGEWAY FUND, INC.
Part C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements (Incorporated by reference)
(b) Exhibits
1. Charter of Registrant (Incorporated by reference)
2. By-laws of Registrant (Incorporated by reference)
3. Inapplicable
4. Inapplicable as By-Laws provide for no
stock certificates
5. Management Contracts for
The Ultra-Small Company Portfolio, the Aggressive
Growth Portfolio and the Social Responsibility
Portfolio (Incorporated by reference)
The Ultra-Small Company Index Portfolio and the
Ultra-Large 35 Index Portfolio
6. Inapplicable
7. Inapplicable
8. Custodian Agreement (Incorporated by reference)
9. None as Registrant will act as its own transfer agent
10. Opinion of Counsel (Incorporated by reference)
11. Consent of Independent Auditors (Incorporated by
reference)
12. Inapplicable
13. Investment Representation letter from initial
shareholders(Incorporated by reference)
14. Inapplicable
15. 12b-1 Plan (Incorporated by reference)
16. Inapplicable
Item 25. Persons controlled by or under Common Control with
Registrant
NONE
Item 26. Number of Holders of Securities
(1) (2)
Number of Record Holders
Title of Class as of June 30, 1996.
Ultra-Small Portfolio 337
Aggressive Growth Portfolio 75
Social Responsibility Portfolio 25
Item 27. Indemnification
See Indemnification Section of By-Laws which is incorporated here by
reference. Registrant will maintain with Rollins Executive Risk Services
Directors and Officers Errors and Omissions liability insurance covering
(among other things) amounts which Registrant may pay pursuant to the
foregoing indemnification provisions.
Item 28. Business and Other Connections of Investment Adviser
As stated in the Prospectus and Statement of Additional Information,
the Investment Adviser was organized in 1993 and will act as an Investment
Adviser to other individuals, businesses, and registered investment
companies.
Item 29. Principal Underwriters
Bridgeway Fund is the distributor of its own securities.
Item 30. Location of Accounts and Records
Accounts and Records of the Registrant are maintained at the offices
of the Registrant, its Adviser and Distributor at 5650 Kirby Drive, Suite
141, Houston, Texas 77005-2443. Custody records are maintained at the
offices of the Registrant's Custodian Bank, River Oaks Trust Company, c/o
Compass Bank at 2001 Kirby Drive, Houston, Texas 77005-2443.
Item 31. Management Services
Other than as set forth under MANAGEMENT in the Statement of
Additional Information, Registrant is not a party to any management related
service contract.
Item 32. Undertakings
Incorporated by reference.
MANAGEMENT CONTRACT
AGREEMENT, made this 26 day of May, 1997 by and between Bridgeway
Fund, Inc., a Maryland corporation (hereinafter called the "Fund"),
and Bridgeway Capital Management, Inc., a Texas corporation
(hereinafter sometimes called the "Adviser").
WITNESSETH:
WHEREAS the Fund and the Adviser wish to enter into an agreement
setting forth the terms on which the Adviser will perform certain
services for the Fund;
NOW THEREFORE, in consideration of the premises and the covenants
contained hereinafter, the Fund and the Adviser agree as follows:
1. The Fund hereby employs the Adviser to manage the investment
and reinvestment of the assets of the Ultra-Small Index Portfolio and
the Ultra-Large 35 Index Portfolio and to administer its affairs,
subject to the supervision of the Board of Directors of the Fund, for
the period and on the terms in this agreement set forth. The Adviser
hereby accepts such employment and agrees during such period, at its
own expense, to render the services and to assume the obligations
herein set forth, for the compensation herein provided. The Adviser
shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Fund in any
way or otherwise be deemed as agent of the Fund.
2. The Adviser, at its own expense, shall furnish to the Fund
office space in the offices of the Adviser or in such other place as
may be agreed upon from time to time, and all necessary office
facilities, equipment and personnel (with the exception of
bookkeeping, auditing, state registration, and accounting personnel)
for managing the affairs and investments and keeping the Fund's
records and shall arrange, if desired by the Fund, for members of the
Adviser's organization or its affiliates to serve without salaries
from the Fund as officers or agents of the Fund. The Adviser assumes
and shall pay or reimburse the Fund for: (1) the compensation (if
any) of the directors of the Fund who are interested persons of the
Adviser, and the compensation of the officers of the Fund as such
(with the exception of the Chief Financial Officer, Accounting Officer
or Treasurer), and (2) all expenses incurred by the Adviser or by the
Fund in connection with the management of the investment and
reinvestment of the assets of the Fund and the administration of the
affairs of the Fund, other than those specifically assumed by the Fund
herein.
Except as otherwise expressly provided above, the Fund assumes
and shall pay all expenses of the Fund, including, without limitation:
(1) the charges and expenses of any custodian or depository appointed
by the Fund for the safekeeping of its cash, securities and other
property, (2) the charges and expenses of bookkeeping personnel,
auditors, and accountants, computer services and record keeping, (3)
the charges and expenses of any transfer agents and registrars
appointed by the Fund, (4) brokers' commissions and issue and transfer
taxes chargeable to the Fund in connection with securities
transactions to which the Fund is a party, (5) all taxes and corporate
fees payable by the Fund to federal, state or other government
agencies, (6) the cost of stock certificates (if any) representing
shares of the Fund, (7) fees and expenses involved in registering and
maintaining registrations of the Fund and of its shares with the
Securities and Exchange Commission and qualifying its shares under
state or other securities laws, including the preparation and printing
of prospectuses used for these purposes and for shareholders of the
Fund, (8) all expenses of shareholders' and directors' meetings and of
preparing and printing reports to shareholders, (9) charges and
expenses of legal counsel for the Fund in connection with legal
matters relating to the Fund, including without limitation, legal
services rendered in connection with the Fund's corporate existence,
corporate and financial structure and relations with its shareholders,
registrations and qualifications of securities under federal, state
and other laws, issues of securities and expenses which the Fund has
herein assumed, (10) compensation of directors who are not interested
persons of the Adviser, (11) interest expense, (12) insurance expense,
and (13) association membership dues.
The services of the Adviser to the Fund hereunder are not to be
deemed exclusive, and the Adviser shall be free to render similar
services to others so long as its services hereunder be not impaired
thereby.
3. As compensation for its services rendered and the charges and
expenses assumed and to be paid by the Adviser as described above,
pays the Adviser a base fee computed and payable on or promptly after
the last market day of each month at the following annual rate:
.5% of the value of the Ultra-Small Index Portfolio's
average daily net assets and
.08% of the value of the Ultra-Large 35 Index Portfolio.
For purposes of calculating such fee, average daily net assets
shall be computed by adding the total asset values less liabilities of
each Portfolio as computed by the Adviser each day (during the month
and dividing the resulting total by the number of days in the month).
Expenses and fees of each Portfolio, including the advisory fee, will
be accrued daily and taken into account in determining net asset
value. For any period less than a full month during which this
agreement is in effect, the fee shall be prorated according to the
proportion which such period bears to a full month.
4. The Fund shall cause its books and accounts to be audited at
least once each year by a reputable, independent public accountant or
organization of public accountants who shall render a report to the
Fund.
5. Subject to and in accordance with the Articles of
Incorporation of the Fund and of the Certificate of Incorporation of
the Adviser, respectively, it is understood that directors, officers,
agents and stockholders of the Fund are or may be interested in the
Adviser (or any successor thereof) as directors, officers or
stockholders, or otherwise, that directors, officers, agents and
stockholders of the Adviser are or may be interested in the Fund as
directors, officers, stockholders or otherwise, that the Adviser (or
any such successor) is or may be interested in the Fund as stockholder
or otherwise and that the effect of any such adverse interests shall
be governed by said Articles of Incorporation and Certificate of
Incorporation, respectively.
6. This agreement shall continue in effect until June 30, 1997
and thereafter from year to year if its continuance after said date is
specifically approved on or before said date and at least annually
thereafter by vote of a majority of the outstanding voting securities
of the Fund or by the Board or Directors of the Fund, and in addition
thereto by a majority of the Directors of the Fund who are not parties
to the agreement or interested persons of the Adviser or affiliated
with any such party except as directors of the Fund, provided,
however, that: (1) this agreement may at any time be terminated
without the payment of any penalty either by vote of the Board of
Directors of the Fund or by vote of a majority of the outstanding
voting securities of the Fund, on sixty days' written notice to the
Adviser, (2) this agreement shall immediately terminate in the event
of its assignment (within the meaning of the federal Investment
Company Act of 1940), and (3) this agreement may be terminated by the
Adviser on ninety days' written notice to the Fund. Any notice under
this agreement shall be given in writing, addressed and delivered, or
mailed postpaid, to the other party at any office of such party.
7. This agreement may be amended at any time by mutual consent
of the parties, provided that such consent on the part of the Fund
shall have been approved by vote of a majority of the outstanding
voting securities of the Fund.
IN WITNESS WHEREOF the parties have hereto executed this
agreement on the day and year first above written.
BRIDGEWAY FUND, INC.
By: _______________________
President
BRIDGEWAY CAPITAL MANAGEMENT, INC.
By: _______________________
President
