BRIDGEWAY FUND INC, N-30D, 1998-03-05

BRIDGEWAY FUND INC
N-30D, 1998-03-05

Previous: BAY APARTMENT COMMUNITIES INC, S-8, 1998-03-05

Next: CHUBB SEPARATE ACCOUNT C, 497, 1998-03-05

February 16, 1998

Dear Fellow Ultra-Small Company Shareholder,

Quarter Performance

In the December quarter our Portfolio gave up roughly half of the previous
quarter gains, declining 13.3%. This was by far the poorest single quarter
since inception three and a half years ago. For only the third quarter in
the last three years, the Portfolio underperformed the Russell 2000
benchmark.

One Year and Three Year Performance

While ending the year on a sour note, we still ranked 32nd among 504 small
company funds for the full year according to Morningstar. The December
quarter performance wasn't really the way I wanted to end the following
stellar three year record:

Three Year Performance

Bridgeway Ultra-Small Company Portfolio now ranks #1 among 325 small-cap
funds over the last three years. Yours is the only small-cap fund to beat
the S&P 500 Index of large companies (with dividends reinvested) in each of
the last three years. Since it is the long-term investment performance we
seek, I have to say I am very proud of this record, and of every person at
Bridgeway--its employees, directors, and service providers--who had a part
in making it happen. Thanks also to you, our shareholders, for providing
the capital base, as well as encouragement, praise, and constructive
criticism.

Performance Summary

Translation: We did poorly in the quarter, great over the last year and 3+
years. We are adding a new performance "benchmark," the CRSP index of
ultra-small companies.

The table below presents our quarter, one year, and life-to-date financial
results according to the formula required by the SEC. New to this table is
the CRSP Cap-Based Portfolio 10 Index, compiled by the University of
Chicago's Center for Research in Securities Prices. I won't bore you with
an explanation for this name, but suffice it to say it is comprised of all
ultra-small stocks on the New York, American, and NASDAQ National Market
exchanges, excluding foreign companies. It is probably the best benchmark
for comparison, since is has a market capitalization almost identical to
our Portfolio.

Dec. Qtr. 1 Year Life-to-Date
9/30/97 12/31/96 8/5/94 to
to 12/31/97 to 12/31/97 12/31/97**

Ultra-Small Company Portfolio (13.3%) 38.0% 29.9%
Lipper Small-Cap Stock Funds* (5.1%) 21.4% 23.0%
Russell 2000 (small growth stocks)* (2.8%) 22.4% 20.5%
CRSP Cap-Based Portfolio 10 Index* (7.0%) 22.5% 18.6%

*The Lipper Small-Cap Stock Funds is an index of small-cap funds compiled
by Lipper Analytical Services, Inc. The Russell 2000 is an unmanaged index
of small stocks, with dividends reinvested. The CRSP Cap-Based Portfolio
10 Index is an unmanaged index of 2700 ultra-small companies compiled by
the Center for Research in Securities Prices, with dividends reinvested.

Past performance does not guarantee future returns.
** Life-to-date returns are annualized; the December quarter period is not
annualized.

Detailed Explanation of Quarterly Performance: Southeast Asia

Southeast Asia seems to be the current whipping boy when investment
managers need a reason to explain subpar performance. Insofar as it
spooked the stock market overall, I guess it had an impact on us too. But
when I look at the actual direct exposure of our stocks to this part of the
world, it's pretty small.
Detailed Explanation of Quarterly Performance: Return to Large Stock
Dominance

Translation: Small companies have outperformed larger companies roughly
half the time historically, with the smallest companies returning the most
overall. Unfortunately, the reverse has been true over most of the three
year life of our fund. Our performance has been good to outstanding when
small companies dominate and fair to middlin' when large ones dominate.
The outstanding performance of small companies in the September quarter was
reflected in the stellar performance of our Portfolio. Then when large
companies began to outperform in the December quarter (investors "fled"
small stocks for the relative "safety" of large companies), we did poorly.

Below is an update of the graph I have presented previously on the amount
by which large companies have outperformed small ones. I attribute at
least half of our December quarter decline to the fact that many investors
fled small stocks for the "safety" of large stocks, driving down the price
of many stocks we own. They didn't decline in the December quarter by as
much as they had gained the quarter before, but they were hit hard. If
you're like me, you may be tired of large cap dominance and would really
like to see what our Portfolio can do when small stocks outperform for an
extended period. The good news is that when the tide turns, I expect to
see some remarkable returns. The bad news is that large stocks have only
dominated for four years now while the average length of time for such a
cycle is between five and six years. My hypothesis is that this cycle
could be shorter this time, since large stocks now look so expensive and
small stocks so cheap, on average. If you agree with this hypothesis, what
should you do? My answer is: nothing different than any other year.
Bridgeway's philosophy is to get a long-term plan for how much exposure you
want to stocks this small, and stick with the plan through thick and thin.
The "thin" over the last few years hasn't been too bad, thanks in part to
the overall rise in all our U.S. market indexes and the success of our
models.

CHART: CUMULATIVE DIFFERENCE IN RETURNS: LARGE STOCKS MINUS SMALL STOCKS
The chart displayed is a bar graph that shows the cumulative difference in
returns between large and small stocks per quarter with a significant
increase in the December 1997 quarter. The data below is the data that
appears on the chart.

9/94 -3%
12/94 -1%
3/95 4%
6/95 4%
9/95 2%
12/95 7%
3/96 8%
6/96 8%
9/96 12%
12/96 18%
3/97 30%
6/97 37%
9/97 29%
12/97 41%

Detailed Explanation of Quarterly Performance: Model Diversification
Didn't Help (Much)

Translation: In addition to seeking stocks which will appreciate, I work
hard to reduce risk in our Portfolio through the models we use. This
strategy has worked well except in two time periods--June/July of 1996 and
September through December, 1997.

One of the things I do as portfolio manager to dampen some of the downside
risk inherent in ultra-small stocks is to diversify by industry and
investing style. Four different models choose these stocks, and when one
model does poorly, we hope to make up some of the difference with another
model style. There have been two time periods now when this didn't work.
The first was in the September quarter of 1996. Our Portfolio had had a
tremendous run, rising 28% over the previous four months and 67% over the
previous year. Immediately following, in June and July, small companies
had a poor showing in the marketplace and our Portfolio fell 17%. We
noticed that the stocks that were hit the hardest were the ones that had
gone up the most. Since that included a number of stocks in our Portfolio,
we were hit hard, too.
I believe the same phenomenon occurred recently in 1997. From the
beginning of May through September, our Portfolio rose 63%. When the
market (as measured by the Dow Jones average) had its first 10+% correction
in seven years during October, the stocks that got hit the hardest over the
next couple of months were the ones which had gone up the most previously.
Regardless of the style or model, we obviously held a number of these
previous winners and our Portfolio fell 13% from the end of September
through December.

Detailed Explanation of Performance--The Movers and Shakers

Translation: In the previous September quarter, 32 stocks rose at least
50% and none declined by this amount. In the December quarter, nine stocks
declined at least 50% and only four rose 50+%. It's certainly more fun to
watch them go up, but this kind of volatility is to be expected from time
to time with ultra-small stocks.

The top two performing stocks in the September quarter appear on the
following list of our worst performing stocks in the December quarter.
This is a big part of the story for the larger portfolio. The stocks that
had gone up the most previously were hit the hardest in the "correction."
While we managed to limit our exposure to falling oil prices in the
December quarter (see "Ten Largest Holdings" below), we took it on the chin
with our exposure to electronics. Three of ten worst performing stocks
were in this industry.

Triteal Corp. Data Processing Software -78%
Reliability Inc. Electronics/Electric -68%
Misonix, Inc. Pollution Control -68%
Intest Corp. Electronics/Electric -59%
JB Oxford HoldingsSecurities -58%
Saint Andres Golf Corp. Leisure-Amusement -55%
Lukens Medical Corp. Medical Equipment -54%
Worldcorp, Inc. Air Transport -52%
Asyst Technologies, Inc. Electronics/Electric -51%

Of these ten stocks, about a third were due to substantive and significant
bad news, about a third were due to something notable, but not
catastrophic, and a third seemed simply to get tarnished by spooked
investors. In the first category, Triteal saw its significant revenues
nearly vanish in one quarter. (Currently there is a class action suit
against the company, there have been major management changes, and the
company has been delisted.) JB Oxford is a brokerage house which looked
well positioned for the boom in internet trading a year ago. Last August,
federal agents made a surprise visit with search warrants in hand. The
company returned to "normal" operations the following day, but there are
some signs of financial stress. Our model seems to be taking a "wait and
see" approach to this one. There's no model variable for federal search
warrants, but the company is now severely undervalued -unless, of course,
we haven't heard the last of the bad news.

In the category of notable, but not catastrophic news, Worldcorp, an
airline leasing company, had a "landing incident" in Uruguay, putting that
plane (a significant portion of the fleet) temporarily out of business.
The company has some Pacific Rim exposure, but also favorable new
contracts. We think the stock is oversold.

Reliability, Inc., which gained a whopping 179% in the September quarter,
is just as healthy at the end of December as the end of September,
according to our models. What's the difference? A stock price of 13
versus a stock price of 43. OK, you can blame Southeast Asia if you want
to.

Not all the news was bad this quarter. Four stocks really shone:

Kreisler Manufacturing Aerospace 152%
Software Artistry, Inc. Data Processing 82%
Omni Insurance Group Insurance 75%
THQ, Inc. Leisure, Amusement 57%

Kreisler, a manufacturer of airplane components, had a ridiculously low
price when we bought it at 5. It wasn't so ridiculously priced when we
sold it a month and a half later near its peak at 13. I'm very glad we
found it first. Omni Insurance and Software Artistry became takeover
targets, realizing the value our models identified. THQ, Inc. rose on
fundamental strength.

Disclaimer

The following is a reminder from the friendly folks at your fund who worry
about liability. The views expressed here are exclusively those of Fund
management. They are not meant as investment advice. Any favorable (or
unfavorable) description of trends or holdings applies only as of the
quarter end, December 31, 1997; security positions can and do change
thereafter. Performance trends discussed here are historical and may not
be repeated in the future.

Largest Ten Holdings

The Portfolio's ten largest holdings at the end of December were:

% Net
Company Industry Assets
Int'l Microcomputer SoftwareComputer Software 2.9%
Winsloew Furniture Home Furnishings 2.9%
Performance Technologies Computer Hardware 2.6%
Trans World Entertainment Retail Stores 2.4%
Amerilink Corp. Telecommunications 2.4%
PTI Holdings, Inc. Leisure-Amusement 2.3%
Candies, Inc. Leather & Shoes 2.2%
Home Products Int'l. Housewares 2.0%
Misonix, Inc. Pollution Control 1.9%

Braun's Fashion Corp. Retail Stores 1.7%
Total 23.4%

The strong current diversification of our Portfolio is demonstrated by the
facts that the top ten holdings represent nine different industries and no
individual stock represents even 3% of the Portfolio. A full schedule of
all investments is included with the semi-annual financial statements
attached. The top industries are electronics (11%), data processing
software (10%), and data processing hardware (9%). In retrospect, our
models limited our exposure to the carnage in the oil and gas industry in
the December quarter. Shortly before crude oil prices peaked (see graph
below), our models took our exposure from 13% at the end of June to only 3%
at the end of September. At current prices, our models are starting to
find good values again in the energy sector.

Previous Story Stock--China Resources Revisited

Translation: If you buy cheap enough, sometimes you can still make money
when things go against you.

A couple of times annually I highlight a stock which I think has a very
interesting, innovative, or puzzling story. Last March I highlighted China
Resources, a People's Republic of China company engaged primarily in the
marketing & distribution of natural rubber. You may remember the company's
stock price was severely depressed and trading at a price less than two
times its trailing 9 months of cash flow. At that rate, the company would
earn cash equal to the stock price in less than a year and a half. (The
average large company stock now takes over 17 years to earn cash equal to
its stock price, so China Resources looked unbelievably cheap.) We bought
the stock at an average price of $2.51/share. Unfortunately, bad things
did happen, including a precipitous fall in the price of rubber. Our model
choked on the resulting decline in company revenues, and we sold at an
average price of $3.46/share, a 38% gain. The stock closed today at $2.25.
I guess the moral to the story is, if you buy cheap enough, sometimes you
can still make money when things go against you.

Taxes

Translation: If you can invest in this Portfolio through a non-taxable
vehicle, such as an IRA, you can save significantly on your tax bill. Last
year this would have saved 2.8% of your investment if you pay taxes at the
top rate. I figure we have to beat the CRSP index by about 2.25%/year
before taxes and portfolio expenses (or 1.5% after expenses, which is the
way you always see it reported) to justify our active management of this
Portfolio in a taxable account. The good news is that we've been very
successful at this so far. (Warning: if conversations about taxes give
you indigestion, fast forward to "Conclusion.")

It's that (tax) time of year again. One shareholder phoned recently to
report he was happy with our overall returns, but asked if we couldn't keep
the turnover and resulting capital gains down? This raises several
important questions, so I thought I would try to briefly address the tax
efficiency of our Portfolio.

The year before, using the same methodology, we realized 25% of the total
return amount. The bad news is that about two-thirds of the realized
capital gains were short-term, taxed to you at a rate up to 39.6% for our
wealthier shareholders. Getting back to the 1997 example, assuming taxes
at the maximum rate, your tax burden adjusted for growth in the Portfolio
would have been about 4.8%. I say adjusted for growth, because one
esoteric aspect of mutual fund accounting is that buyers in the latter part
of the year pick up part of the tax bill for shareholders who were in for
the first part of the year. Looking forward, I believe the 4.8% is the
more relevant number, since our fund is closed to new investors and will be
closed to all investments after June 30, 1998. (If you used our actual
dividend distribution and top tax rates, the tax bill would equal a much
lower 2.8% of the value of your account on the distribution date; so in
1997, you got a bit of a free ride for investments held since October,
1996.)

To summarize, after making certain assumptions and adjustments, I believe
you might normally pay taxes of about 4.8% on a total return of 60.6%.
This really doesn't sound too bad to me. But most years will certainly not
include a return this high (indeed for the calendar year 1997 our return
was a lower 38%). So let's take a look at what a more conservative year
would look like.

For the purpose of this analysis, let us assume the average annual return
of the ultra-small asset class and forget the fact we have significantly
outperformed this index so far. Over the last seven+ decades, ultra-small
stocks have returned 16.9%. If we assume our capital gains to be 25% of
this amount and that these are taxed at an average 35% rate, the tax bill
would be 16.9 x .25 x .35 = 1.5%. If you compare this to our Ultra-Small
Index Portfolio (where we try to distribute little or no gains), this means
we have to add 1.5% more return through our active management. This is
actually a fairly high hurdle by industry standards, but according to the
table on page one, we have beaten the relevant index by 11.3%/year so far.
Another factor one might want to throw into such an analysis is the
difference in expense ratios, which is higher for actively managed funds.
The difference in expense ratios between Bridgeway Ultra-Small Company
Portfolio and Bridgeway Ultra-Small Index Portfolio is 1.5% minus 0.75% =
0.75%. So, assuming all else is equal, we have to beat the index by 1.5%
(for taxes) plus 0.75% (for higher expense ratio) equals a fairly high
2.25% to make it worthwhile to stay in this actively managed portfolio in a
taxable account. Right now all my exposure to Ultra-Small Company is
through my IRA (so I'm not paying taxes), but even if I had money in a
taxable account, I'd stay put.
Now for answers to some specific questions this analysis raises:

Can't we keep the turnover down? Unfortunately, most (not all) of the
models we use have a fairly high turnover. There is a significant cost in
commissions, other trading costs, and taxes, so if I could, I would. So
far, however, our returns justify the additional turnover even in a taxable
account.

Should I hold shares of the Portfolio in a taxable or non-taxable account?
By all means in a non-taxable account, such as an IRA, if at all possible.

How much should I expect to pay in taxes? This varies with a number of
factors, such as our return for a given period, the percentage of gains we
actually take (or "realize"), and your actual marginal tax rate. The
analysis above indicated a tax of 1.5% based on returns lower than what we
have experienced. The actual tax in 1997 at the highest tax rate was 2.8%
of your investment and would have been higher if the Portfolio had been
closed to new investments for the full tax year.

Should I invest in an index fund to keep my taxes down? I can't give
specific advice on this, since I don't know your specific situation nor
future returns of our Portfolio. However, based on my own analysis and
projections, I would stay put, even if my money were invested in a taxable
account. If I had maxed out my potential contributions and wanted more
ultra-small company exposure, I would give Bridgeway Ultra-Small Index
Portfolio serious consideration, however.

Conclusion

As always, I appreciate your feedback. We keep a bulletin board of
shareholder comments and suggestions and we take them very seriously. I
plan to update you periodically on some of our quarterly feedback. As a
result of previous shareholder feedback, we have recently begun posting our
daily NAV's on the Internet at Bridgewayfund.com. Please keep your ideas
coming.

Sincerely,

John Montgomery
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC. - ULTRA-SMALL COMPANY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
As of December 31, 1997

<S> <C>
Assets:
Investments at value (cost - $37,092,233) $40,678,330
Cash 417,063
Receivable for interest 259
Receivable for dividends 2,509
Prepaid expenses 12,354
Deferred organization costs 6,982
--------------------
Total assets 41,117,497
--------------------

Liabilities:
Payable for shares redeemed 32,313
Payable for investments purchased 110,806
Payable for management fee 1,356
Payable for organization costs 6,995
Accrued expenses 672
--------------------
Total liabilities 152,142
--------------------
Net Assets ( 1,876,322 shares outstanding) $40,965,355
====================
Net asset value, offering and redemption price per share $21.83
====================

Net Assets Represent:
Paid-in capital $33,629,522
Undistributed net realized gain/(loss) 3,749,736
Net unrealized appreciation of investments 3,586,097
--------------------
Net assets $40,965,355
====================

</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS (Unaudited)
For the six months ended December 31, 1997

<S> <C>
Investment income:
Dividends $18,118
Interest 23,738
--------------------
Total income 41,856

Expenses:
Management fees 237,736
Accounting fees 45,625
Audit fees 4,779
Custody 10,620
Amortization of organization costs 2,234
Insurance 1,947
Legal 8,850
Registration fees 5,310
Director fees 333
Miscellaneous 52
--------------------
Total expenses 317,486
--------------------

Net investment loss (275,630)
--------------------

Net realized and unrealized gain on investments:
Net realized gain on investments 6,483,033
Net change in unrealized appreciation during period (2,057,685)
--------------------
Net realized and unrealized gain 4,425,348

Net increase in assets resulting from operations $4,149,718
====================

See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC. - ULTRA-SMALL COMPANY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS (Unaudited)

Six months ended Year ended
Increase (decrease) in net assets: December 31, 1997 June 30, 1997
Operations:
<S> <C> <C>
Net investment loss ($275,630) ($203,962)
Net realized gain on investments 6,483,033 238,109
Net change in unrealized appreciation (2,057,685) 5,324,346
------------------ ------------------
Net increase resulting from operations 4,149,718 5,358,493
------------------ ------------------
Distributions to shareholders:
From net investment income 0 0
From realized gains on investments (3,067,146) (228,177)
------------------ ------------------
Total distributions to shareholders (3,067,146) (228,177)
Fund share transactions:
Proceeds from sale of shares 8,901,276 23,069,647
Reinvestment of dividends 3,018,351 209,831
Cost of shares redeemed (2,107,046) (2,897,183)
------------------ ------------------
Net increase from Fund share transactions 9,812,581 20,382,295
------------------ ------------------
Net increase in net assets 10,895,153 25,512,611
Net assets:
Beginning of period 30,070,202 4,557,591
------------------ ------------------
End of period $40,965,355 $30,070,202
================== ==================

Number of Fund shares:
Sold 361,153 1,341,007
Issued on dividends reinvested 141,441 12,394
Redeemed (84,326) (168,592)
------------------ ------------------
Net increase 418,268 1,184,809
Outstanding at beginning of period 1,458,054 273,245
------------------ ------------------
Outstanding at end of period 1,876,322 1,458,054
================== ==================
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (Unaudited)
(for a share outstanding throughout the period)

Six months ended Year ended Year ended 8/5/94* to
December 31, 1997 June 30, 1997 June 30, 1996 June 30, 1995
<S> <C> <C> <C> <C>
Per share data
Net asset value, beginning of period $20.62 $16.68 $11.35 $10.33
------------------ ------------------ ------------------ ------------------
Income (loss) from investment operations:
Net investment loss (0.17) (0.24) (0.21) (0.04)
Net realized and unrealized gain 3.17 4.50 6.03 1.07
------------------ ------------------ ------------------ ------------------
Total from investment operations 3.00 4.26 5.82 1.03
------------------ ------------------ ------------------ ------------------
Less distributions to shareholders:
Net investment income 0.00 0.00 0.00 0.00
Net realized gains (1.79) (0.32) (0.49) (0.01)
------------------ ------------------ ------------------ ------------------
Total distributions (1.79) (0.32) (0.49) (0.01)
------------------ ------------------ ------------------ ------------------
Net asset value, end of period $21.83 $20.62 $16.68 $11.35
================== ================== ================== ==================

Total return [1] 14.8% 26.0% 52.4% 10.5%
Ratios & Supplemental Data
Net assets, end of period $40,965,355 $30,070,202 $4,557,591 $667,536
Ratios to average net assets: [2]
Expenses net of waivers and reimbursements 1.58% 1.67% 1.97% 1.68%
Expenses before waivers and reimbursements 1.58% 1.87% 3.07% 8.34%
Net investment income (loss) (1.38%) (1.37%) (1.47%) (0.65%)
Commission Cost/Share $0.0084 $0.0097
Portfolio turnover rate [2] 101.2% 56.2% 155.9% 103.6%

[1] Not annualized for periods less than a year.
[2] Annualized for periods less than a year.
* August 5, 1994 was commencement of operations.

See accompanying notes to financial statements.
</TABLE>
<PAGE>

BRIDGEWAY FUND, INC.
ULTRA-SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS

1. Organization:

Bridgeway Fund, Inc. (the "Fund") was organized as a Maryland corporation
on October 19, 1993, and is registered under the Investment Company Act of
1940, as amended, as a no-load, diversified, open-end management investment
company.

The Fund is organized as a series fund and has five portfolios. The Fund
commenced operations as a regulated investment company on August 5, 1994
with the Ultra-Small Company Portfolio, the Aggressive Growth Portfolio and
the Social Responsibility Portfolio. On July 20, 1997, the Fund added two
portfolios: the Ultra-Small Index Portfolio and the Ultra-Large 35 Index
Portfolio. The Fund is authorized to issue 1,000,000,000 shares.

2.Significant Accounting Policies:

The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.

Securities Valuation

Securities are valued at the closing price for securities traded on a
principal U.S. securities exchange and on NASDAQ. Listed securities for
which no sales are reported are valued at the latest bid price in
accordance with the pricing policy established by the Fund's Board of
Directors. When current bid prices are not available, the most recently
available quoted closing or bid price is used and adjusted for changes in
the index on the exchange on which that security trades, also in accordance
with the pricing policy established by the Fund's Board of Directors.

Federal Income Taxes

It is the Fund's policy to comply with the requirements of Subchapter M of
the Internal Revenue Code applicable to regulated investment companies,
including the timely distribution of all its taxable income to its
shareholders. Therefore, no federal income tax provision has been
recorded.

Deferred Organization Costs

Deferred organization costs are amortized on a straight-line basis over
five years. The initial shareholders, prior to the prospectus being
declared effective on June 30, 1994, have agreed that if any of the initial
shares of each portfolio are redeemed during such amortization period by
any holder thereof, the redemption proceeds will be reduced by the amount
of the then unamortized organization expenses in the same ratio as the
number of shares redeemed bears to the number of total outstanding shares
at the time of redemption.

At December 31, 1997, the Ultra-Small Company Portfolio had deferred
organization costs in the amount of $6,995 payable to Bridgeway Capital
Management, Inc.

Distributions to Shareholders

Distributions to shareholders are recorded when declared. The amount and
character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles.

During the year ended June 30, 1997, the Ultra-Small Company and the
Aggressive Growth Portfolios did not pay sufficient dividends and
distributions from net investment income and from net capital gains
generated during the year ended June 30, 1996. The Ultra-Small Company and
the Aggressive Growth Portfolios have petitioned the Internal Revenue
Service for permission to make such deficient distributions during the year
ended June 30, 1998. Taxpayers would be taxed on these
distributions in the year received. Based upon management's
assessment, the interest and penalties related to these deficient
distributions are expected to be approximately $26,000. The Adviser has
committed to pay the interest and penalties and all other costs associated
with resolving the deficiency for the portfolios. No assurance can be
given as to whether the Internal Revenue Service will accept the petition.

Use of Estimates in Financial Statements

In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, as well as the reported amounts of income and
expenses during the reporting period. Actual results could differ from
those estimates.

12b-1 Plan

The Fund acts as distributor of its shares pursuant to a 12b-1 plan adopted
by shareholders on October 15, 1996. The cost of distributing shares of
the Fund is borne by the Adviser at no cost to the Fund; thus, there is no
"12b-1 fee."

Other

Security transactions are accounted for as of the trade date, the date the
order to buy or sell is executed. Realized gains and losses are computed
on the identified cost basis. Dividend income is recorded on the ex-
dividend date, and interest income is recorded on the accrual basis.

3.Management Contract:

The Ultra-Small Company Portfolio pays a flat 0.9% annual management fee,
computed daily and payable monthly, except that while the Portfolio's net
assets range from $27.5 million to $55 million the fee will be $495,000
annually subject to a maximum rate of 1.49% and a maximum expense ratio of
2.0%.

4.Related Party Transactions:

One director of the Fund, John Montgomery, is an owner and director of the
Adviser. Under the Investment Company Act of 1940 definitions, he is
considered to be "affiliated" and "interested." Compensation of Mr.
Montgomery is borne by the Adviser rather than the Fund. The other
officers are employees of the Adviser, and the portion of their
compensation attributable to fund accounting, shareholder accounting and
state registration services is paid by the Fund and is included in the
Accounting fees and Registration fees expense categories of the financial
statements.

5.Custodial Agreement:

The Fund has entered into a Custodial Agreement with Compass Bank (formerly
River Oaks Trust). As compensation for services rendered by the custodian,
each portfolio pays a fee, computed and paid quarterly based on the average
month end total assets of each portfolio for the quarter plus a fee per
transaction.

6.Cost, Purchases and Sales of Investment Securities:

Investments have the same cost for tax and financial statement purposes.
Aggregate purchases were $27,282,221 and sales of investment securities,
other than cash equivalents were $18,861,597.
<PAGE>
February 25, 1998

Dear Ultra-Small Index Portfolio Shareholder,

Our performance during the first five months from inception through
December, 1997 was a disappointing -0.4%. This rate tracked the CRSP Index
(the index on which our Portfolio is based) poorly, primarily due to the
fact that we have not had a fully representative sample of the 2650 stocks
which make up the CRSP Index.

Performance Summary

The following table presents SEC standardized performance for the first
five months of operations from July 31, 1997 to December 31, 1997**:

Life-to-Date
7/31/97 to
12/31/97**

Ultra-Small Index Portfolio (0.4%)
CRSP Cap-Based Portfolio 10 Index* 6.9%
Russell 2000 Index* 6.2%

*The CRSP Cap-Based Portfolio 10 Index is an unmanaged index of 2650 of the
smallest publicly traded U.S. stocks (with dividends reinvested) as
reported by the Center for Research on Securities Prices. This is the
index we are seeking to match. The Russell 2000 Index is an unmanaged
index of small companies (with dividends reinvested). This latter index is
the mostly widely tracked index among small company funds, but is comprised
of companies roughly 6 times larger than that of the CRSP Index and the
Bridgeway Portfolio. Past performance does not guarantee future returns.
** Returns are not annualized.

Explanation of Performance

Translation: Our new Portfolio went great guns for the first two and a
half months, then gave up all these gains in the next two and a half months
as investors retreated back to the safety of "blue chip" stocks, selling
ours. This Portfolio will not likely do well in the latter environment
(which historically, has not been the prevailing environment). We
underperformed our benchmark index in this period because we do not yet own
enough stocks to accurately replicate the index. I expect to more closely
"track" the index performance as assets continue to build.

After a promising first two months, investors turned back to large, "blue
chip" stocks in the December quarter, abandoning ultra-small stocks and
driving the prices of our shares back down. This phenomenon can be seen
clearly by examining the prices of our two index funds--Ultra-Large and
Ultra-Small. On October 15, Ultra-Small Index Portfolio was up 16.2%,
while the Ultra-Large 35 Index Portfolio remained at the exact same price
as the original offering on July 31. We were hoping that this trend would
continue, finally allowing small stocks to catch up with the breakneck pace
of ultra-large stocks over the last three years. This didn't happen.
Beginning with the stock market correction in late October and continuing
through December, investors abandoned small and ultra-small stocks in favor
of large companies, which appreciated slightly.

Apart from the trend of small stocks, we underperformed our index by 7% in
just five months. This is a huge "tracking error" for an index fund, an
amount which is unacceptable. I would expect significantly higher error
for a micro-cap or ultra-small cap fund, but would not expect it to vary by
more than a few percentage points over the course of a year. So what
happened?

A majority of the tracking error occurred in the month of December. I
analyzed the December trading costs (the "spread" between bid and ask stock
quotes plus commission) and determined it was only about .1% of the
problem. (We continue to improve our record as the size of our trades
increases.) Our expense ratio is not allowed to exceed 0.75% annually or
0.06%/month, so this was also not the problem. We were essentially fully
invested for the period, so holding lower performing "cash" instruments was
not the problem. Finally, the tracking problem could be attributed to our
sampling of the stocks that make up the index, which now consists of 2,650
companies. With $1 million in assets, we averaged only 61 stocks in the
Portfolio in the December quarter. (The number now stands at 95 and is
climbing). We had intended to double the number of portfolio stocks in the
December quarter, but new inflows of cash came to a standstill as the
market plummeted in October and small stocks took it on the chin. The
bottom line is: the stocks we selected to represent the full universe of
the index simply did not replicate the index.

We choose stocks in order to roughly 1) match the market capitalization of
the index, 2) match the value/growth orientation of the index, and 3) match
the industry concentrations. My associate will soon perform analysis to
determine whether there is any systematic bias in the specific stocks we
used to represent the index. (I'll report on this effort in my next
shareholder letter.) I am also studying the possibility of choosing stocks
which individually strongly correlate with the index as a way to minimize
tracking error.

One important factor is that while we didn't replicate the index well in
the first five months, my best estimate of the expected return from these
stocks is still that of the index. The small number of stocks means that
in any one quarter we may under- or over- perform the index. However, I
would not expect this tracking error to be always negative. Indeed, we
outperformed the CRSP Index by 1.1% in January, and I suspect we are doing
it again in February, since we are up 10.2% year-to-date through the date
of this letter.

I am not pleased with our performance in the first five months, but I am
also quite optimistic about the future. We should more closely replicate
the index performance as assets grow and our number of stocks approaches
several hundred (our original goal within the first year).

The Case for Ultra-Small Stock Indexing

Translation: Some studies indicate it is easier to "beat the market" by
investing in small stocks, but very difficult to do so with large stocks.
If this is true, it would lead one to use index funds for the more stable
"large-cap" portion of one's investments, but to use actively managed funds
for the "small-cap" portion. While I agree that a larger percentage of
small-cap funds have beaten the market over longer periods, I still believe
there is a compelling case in favor of using an ultra-small index fund when
very disciplined, limited edition funds (such as Bridgeway Ultra-Small
Company Portfolio) are not available. In particular, I believe the average
actively managed small-cap fund must add nearly 3 percentage points more
return through active management to justify investing in an active fund
versus an ultra-small index fund. This is a very high hurdle by industry
standards. The last fifteen year record indicates small-cap funds as a
group have not cleared such a hurdle. It is highly questionable if even
the best among these funds can continue to do so.

Last year Morningstar published an article which might have the reader
conclude that one should "index" the more stable large company portion of
one's portfolio while using active management for small and foreign stocks.
I am indeed a proponent of active management in very small-cap investing,
but feel our Ultra-Small Index Portfolio offers some significant advantages
over most actively managed small-cap funds. Let me try to make this case:

According to data presented in Ibbotson's Stocks, Bonds, Bills, and
Inflation, ultra-small stocks (they call them 10th decile stocks) have
historically carried an average annual "size premium" of 5.8% over the S&P
500 and 4.3% over the size stock that the average small cap fund is
invested in. This is a phenomenal statement. (Over the course of 20
years, four percentage points more per year would result in a portfolio
over twice as large, so this is no small change.) However, there are
different ways to do this analysis, and I would argue for a more
conservative estimate of just 2%/year that one might expect from ultra-
small stocks over small stocks. Assuming this more conservative figure of
2%, it is still possible to "squander" this advantage through high trading
costs and turnover. Based on our previous experience trading ultra-small
stocks for our actively managed portfolio, we believe we can bring this
trading cost disadvantage down to zero, so I will ignore it here.
Consequently, an actively managed small-cap fund must "add value" to the
tune of two percentage points in order to meet the expected return of an
ultra-small index portfolio. I call this additional two percent the
"hurdle" an active manager must clear to justify his or her active
management.

Ooops. It's worse than that. The average actively managed retail small-
cap fund has an expense ratio of 1.62%, over twice our index portfolio rate
of 0.75%. This means the average actively managed small-cap fund has a 2.0
+ (1.62 - 0.75) = 2.87% "active management hurdle" to clear. So what does
the actual small-cap mutual fund record look like?

Only 22 small-cap mutual funds have a full 15 year history, the longest
period for which I have data. (There are now over 500!) These 22 funds
did, in fact, out-perform the Russell 2000 small-cap index by a small
amount (13.8% vs. 13.3%); they did overcome their entire expense ratio plus
another half percent return. They cleared 2.12% (their expense ratio plus
0.5% performance above the Russell 2000 Index plus 0.75% allowance for the
index expense ratio) of the 2.87% hurdle we set. They still fall short by
more than three quarters of one percent.

This analysis might be the end of the story, but it's not. The average
load of these 22 funds is 2%. Amortized over the full 15 years, we have to
subtract another 0.13%/year. But we're still not done. Unfortunately,
there were more than 22 small-cap mutual funds in existence 15 years ago.
Some of them are now out of business. As you might guess, these were not
the higher performing funds, creating something called "survivorship bias."
Based on a couple of studies I have read, a reasonable estimate of the
effect of survivorship bias is 1%/year. So, adding all this together
(1.62% + 0.50% - 0.13% - 1.00%), we find that the average fund really
achieved about 1% additional return toward the 2.87% hurdle above. The
average fund fails to clear the hurdle by 1.88%--a strong case in favor of
an ultra-small index fund. This doesn't mean I'm against active
management; I'm not. I just feel that the amount by which a portfolio
manager needs to outperform a given benchmark is higher than one might
think, probably too high.

Oh, shoot. I forgot about taxes. In a taxable account, index funds have
another huge advantage. Let's say the market appreciates 10%/year. An
actively managed small-cap fund has a turnover rate of about 100%. If half
of the capital gains (relative to the index fund) are returned to
shareholders each year at a 28% taxable rate, we need to go back and raise
the hurdle for the actively managed fund. .28 x 0.5 x 10% = 1.4%/year.
Adding this to the 2.87% above, raises the hurdle in a taxable account to
4.27%. Ouch, now we're really getting into the realm where it's becoming
hard to beat my theoretical (maybe your actual?) index fund. Only three of
the 22 actual funds cleared this new hurdle. Out of, say 50, small-cap
funds actually in existence 15 years ago, do you think you could pick one
of the top 3? This is roughly what I think you need to do to beat the
index strategy of your portfolio.

This analysis could become still more complicated. It doesn't take into
consideration the greater short-term volatility of ultra-small stocks, nor
their superior protection against inflation over a 15 year period, nor the
fact that even in a tax-deferred account, you end up paying taxes some day.
Nevertheless, I think the analysis is in the ball park of what it takes to
beat an ultra-small index strategy, and I think the true number is a big
one. The table below summarizes our analysis:

Higher Hurdle for Small-Cap Fund to Clear

Higher avg. historical return of ultra-small companies 2.00%
Average small-cap fund expense ratio 1.62%
Less ultra-small index expense ratio -0.75%
Total "Hurdle" for Small-Cap Fund to Beat
Index Fund in tax-free account 2.87%

Additional tax burden at top tax rate (taxable accounts only) 1.40%
Total "Hurdle" in Taxable Account 4.27%

Actual 1982-1997 Record for Actively Managed Small-Cap Funds

Performance successfully covering expense ratio 1.62%
Amount by which funds beat the Russell 2000 Index 0.50%
Survivorship bias -1.00%
Load (sales charge) amortized over 15 years -0.13%
Total Amount Earned Toward Clearing the "Hurdle" 0.99%

The Rest of the Picture: Manager Moves, "Size Creep,"

In addition to the financial hurdles above, there are two other
disadvantages of actively managed funds. One is the risk that you actually
pick one of the future top few portfolio managers and he or she jumps ship
to move to another fund. Or maybe this star manager gets hit by a bus (my
last career was in transportation). Will the new manager have the same
skill in clearing the hurdle we set above?

An even bigger risk is that as the portfolio builds a great performance
record, it gets flooded with cash and becomes a rather not-so-small-cap
fund. Of the three top performing funds which cleared our hurdle over the
last 15 years, none has a median market capitalization under $1 billion.
This means that the average size of the companies these funds invest in are
all more than ten times the size of our companies. As assets climb and
company size creeps up, performance typically deteriorates. Of the same
three winning funds above, only one beat the Russell 2000 Index in the last
three years of this 15 year record. Maybe investors in these funds should
be thinking about a large-cap index fund for the next 15 years.

Conclusion

I appreciate your feedback. We keep a bulletin board of shareholder
comments and suggestions and we take them very seriously. I plan to update
you periodically on some of our quarterly feedback. As a result of
previous Fund shareholder feedback, we have recently begun posting our
daily NAV's on the Internet at Bridgewayfund.com. Please keep your ideas
coming.

Sincerely,

John Montgomery
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC. - ULTRA-SMALL INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
As of December 31, 1997

<S> <C>
Assets:
Investments at value (cost - $1,259,381) $1,111,628
Receivable for investments sold 147,238
Receivable for dividends 189
Deferred organization costs 4,147
------------------
Total assets 1,263,202
------------------

Liabilities:
Payable for shares redeemed 140,314
Payable for management fee 1,546
Payable for organization costs 4,147
Accrued expenses 939
------------------
Total liabilities 146,946
------------------
Net Assets ( 223,928 shares outstanding) $1,116,256
==================
Net asset value, offering and redemption price per share $4.98
==================

Net Assets Represent:
Paid-in capital $1,256,252
Undistributed net realized gain 7,757
Net unrealized depreciation of investments (147,753)
------------------
Net assets $1,116,256
==================
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS (Unaudited)
From inception (July 31, 1997) to December 31, 1997

<S> <C>
Investment income:
Dividends $468
Interest 563
------------------
Total income $1,031

Expenses:
Management fees 1,598
Accounting fees 1,297
Amortization of organization costs 379
------------------
Total expenses 3,274
Less fees waived (963)
------------------
Net expenses 2,311
------------------

Net investment loss (1,280)
------------------

Net realized and unrealized gain on investments:
Net realized gain on investments 7,757
Net change in unrealized depreciation during period (147,753)
Net realized gain and unrealized loss (139,996)

Net decrease in assets resulting from operations ($141,276)
==================

See accompanying notes to financial statements.
<PAGE>

</TABLE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC. - ULTRA-SMALL INDEX PORTOLIO
STATEMENT OF CHANGES IN NET ASSETS (Unaudited)

July 31, 1997* to
Increase (decrease) in net assets: December 31, 1997
<S> <C>
Operations:
Net investment loss ($1,280)
Net realized gain on investments 7,757
Net change in unrealized depreciation (147,753)
------------------
Net increase resulting from operations (141,276)
------------------
Distributions to shareholders:
From net investment income 0
From realized gains on investments 0
------------------
Total distributions to shareholders 0
Fund share transactions:
Proceeds from sale of shares 1,563,912
Reinvestment of dividends 0
Cost of shares redeemed (306,380)
------------------
Net increase from Fund share transactions 1,257,532
------------------
Net increase in net assets 1,116,256
Net assets:
Beginning of period 0
------------------
End of period $1,116,256
==================

Number of Fund shares:
Sold 284,338
Issued on dividends reinvested 0
Redeemed (60,410)
------------------
Net increase 223,928
Outstanding at beginning of period 0
------------------
Outstanding at end of period 223,928
==================

</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (Unaudited)
(for a share outstanding throughout the period)

July 31, 1997* to
December 31, 1997
Per share data
<S> <C>
Net asset value, beginning of period $5.00
------------------
Income (loss) from investment operations:
Net investment loss (0.01)
Net realized and unrealized gain (0.01)
------------------
Total from investment operations (0.02)
------------------
Less distributions to shareholders:
Net investment income 0.00
Net realized gains 0.00
------------------
Total distributions 0.00
------------------
Net asset value, end of period $4.98
==================

Total return [1] (0.4%)
Ratios & Supplemental Data
Net assets, end of period $1,116,256
Ratios to average net assets: [2]
Expenses net of waivers and reimbursements 0.70%
Expenses before waivers and reimbursements 0.99%
Net investment income (loss) (0.39%)
Commission Cost/Share $0.0107
Portfolio turnover rate [2] 66.5%

[1] Not annualized.
[2] Annualized.
* July 31, 1997 was initial offering.

See accompanying notes to financial statements.
</TABLE>
<PAGE>

BRIDGEWAY FUND, INC.
ULTRA-SMALL INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS

1. Organization:

2.Significant Accounting Policies:

The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.

Securities Valuation

Federal Income Taxes

Deferred Organization Costs

At December 31, 1997, the Ultra-Small Index Portfolio had deferred
organization costs in the amount of $4,147 payable to Bridgeway Capital
Management, Inc.

Distributions to Shareholders

Use of Estimates in Financial Statements

12b-1 Plan

Other

Assets in the Ultra-Small Index Portfolio are very low, and may remain so
in the immediate future. Because commission cost per trade is unacceptably
high as a percentage of assets, the Adviser reimburses the Portfolio for
any commissions above one cent/share. The Adviser expects to continue this
practice until portfolio net assets reach at least $2 million.

3. Management Contract:

The Ultra-Small Index Portfolio pays a flat 0.5% annual management fee,
computed daily and payable monthly subject to a maximum expense ratio of
0.75%.

4. Related Party Transactions:

One director of the Fund, John Montgomery, is an owner and director of the
Adviser. Under the Investment Company Act of 1940 definitions, he is
considered to be "affiliated" and "interested." Compensation of Mr.
Montgomery is borne by the Adviser rather than the Fund. The other
officers are employees of the Adviser and the portion of their compensation
attributable to fund accounting, shareholder accounting and state
registration services is paid by the Fund and is included in the Accounting
fees and Registration fees expense categories of the financial statements.

The Adviser has been voluntarily reimbursing the Ultra-Small Index
Portfolio for any operating expenses above 0.75%. The Adviser expects to
continue this voluntary level of reimbursement, if necessary, indefinitely.
The Adviser has waived a portion of the management fees for the Portfolio.

5.Custodial Agreement:

6.Cost, Purchases and Sales of Investment Securities:

Investments have the same cost for tax and financial statement purposes.
Aggregate purchases were $1,433,176 and sales of investment securities,
other than cash equivalents were $181,559.

<PAGE>
February 16, 1998

Dear Fellow Aggressive Growth Shareholder,

In the December quarter our Portfolio gave up nearly 2/3 of the previous
quarter gains, declining 10.6%. This was the poorest single quarter since
inception three and a half years ago. For only the fourth quarter in our
history, the Portfolio underperformed the S&P 500. As a result, we fell to
67th place among 129 aggressive growth funds over the last year. Over the
last three years we ranked 17th of 82 aggressive growth funds, according to
Morningstar.

The Bridgeway name continues to rank among the performance charts. On a
recent listing of one and three year performance rankings, only one other
fund family's name was listed as many times as Bridgeway. Quite frankly,
though, this just isn't good enough. I won't be satisfied until we are
comfortably ahead of every benchmark in the table below on a cumulative
basis.

Performance Summary

The table below presents our quarter, one year, and life-to-date financial
results according to the formula required by the SEC:

Dec. Qtr. 1 Year Life-to-Date
9/30/97 12/31/96 8/5/94 to
to 12/31/97 to 12/31/97 12/31/97**
Aggressive Growth Portfolio (10.6%) 18.3% 25.4%
S&P 500 Index (large companies)* 2.9% 33.4% 27.6%
Russell 2000 (small growth companies)* (2.8%) 22.4% 20.5%
Lipper Capital Appreciation Funds* (3.7%) 20.4% 19.7%

*The S&P 500 and Russell 2000 are unmanaged indexes of large and small
companies, with dividends reinvested. The Lipper Capital Appreciation
Funds reflect the aggregate record of more aggressive domestic growth
mutual funds as reported by Lipper Analytical Services, Inc. Past
performance does not guarantee future returns.
** Life-to-date returns are annualized; quarterly returns are not
annualized.

Detailed Explanation of Quarterly Performance: Southeast Asia?

Detailed Explanation of Quarterly Performance: Return to Large Stock
Dominance

Translation: Small companies have outperformed larger companies roughly
half the time historically, with the smallest companies returning the most
overall. The reverse has been true over most of the three and a half year
life of our fund. Since our models are currently finding better values
among the smaller companies, we have significant exposure here. When small
companies performed very well in the September quarter, we did great. When
large companies did relatively well in the December quarter (investors
"fled" small stocks for the relative "safety" of large companies), we did
poorly.

Below is an update of the graph I have presented previously on the amount

by which large companies have outperformed small ones. I attribute nearly
half of our December quarter decline to the fact that many investors fled
small stocks for the "safety" of large stocks, driving down the price of
many stocks we own. Specifically, of the 40 stocks we owned at the
beginning of the quarter, 23 declined by at least 10%. Of these 23, 18
were small stocks. They didn't decline in the December quarter by as much
as they had gained the quarter before, but they were hit hard.
Fortunately, none of our core holdings (more concentrated positions
comprising from five to ten percent of assets) was among these 23.

CHART: CUMULATIVE DIFFERENCE IN RETURNS: LARGE STOCKS MINUS SMALL STOCKS

The chart displayed is a bar graph that shows the cumulative difference in
returns between large and small stocks per quarter with a significant
increase in the December 1997 quarter. The data below is the data that
appears on the chart.

9/94 -3%
12/94 -1%
3/95 4%
6/95 4%
9/95 2%
12/95 7%
3/96 8%
6/96 8%
9/96 12%
12/96 18%
3/97 30%
6/97 37%
9/97 29%
12/97 41%

Detailed Explanation of Quarterly Performance: Momentum Stocks Pull Back

About 10% of our Portfolio assets are invested in stocks I would categorize
as "momentum style," those which have experienced increasing earnings,
sales, and/or stock price. Wall Street tends to pay a premium for stocks
which have very steadily improving fundamental and technical statistics.
Unfortunately, that premium can vanish overnight, and the stock price can
come plummeting down upon even a hint of bad news. Because of this
potential risk, we rarely invest more than 2% of Portfolio assets in any
one such stock. During the quarter, four (previously) top performing
mutual funds which are sometimes referred to as "momentum players" dropped
an average of 14%. The performance of our Portfolio was also negatively
affected by this category of stocks.

The One That (Thank Heavens) Got Away

We did sidestep one potential momentum travesty in the form of Oxford
Health Systems, which has been much in the news lately. We bought this
stock in May at $69 per share. We sold it at $73.59 (a 7% gain) on October
10 when our model indicated the risk characteristics had become too high.
Two and a half weeks later the stock fell from $68.75 to $25.875 all in one
day on news of major accounting, reporting, and management problems.
Recently, the stock has traded under $17. You can see why we don't take
big positions in stocks with these characteristics.

Detailed Explanation of Quarterly Performance: Oil Doesn't Help Either

A major decline in the price of oil didn't help our stocks in this part of
our Portfolio, either. As indicated on the graph below, crude oil declined
from a high of $22/barrel in early October to $17/barrel at the end of the
quarter. The price of exploration and service stocks followed, with Varco
International down 26.5%, Hvide Marine down 19.5%, Key Production down
19.2%, and Tidewater down 10.9%. Ouch!

The Other Side of the Ledger--What Did Go UP?

Diversification didn't really help much in the December quarter.
Technology, oil, small and momentum stocks were all down. Fortunately, our
third largest holding at the beginning of the quarter, Standard Pacific, a
California home builder, went up 49%. This helped cushion the fall, as did
Jackson Hewitt, the second largest preparer of tax returns. This company
was taken over, resulting in a 78% gain in the quarter.

Disclaimer

The following is a reminder from the friendly folks at your fund who worry
about liability. The views expressed here are exclusively those of Fund
management. They are not meant as investment advice. Any favorable (or
unfavorable) description of a holding applies only as of the quarter end,
December 31, 1997; security positions can and do change thereafter.

Largest Positions

Translation: Your portfolio manager invests more money in a fewer number
of companies than some other mutual funds (this is called "concentration"),
but works very hard on overall diversification, that is, not loading up on
any one industry or region of the country. We try hard not to put all our
eggs in one basket. No two of our largest ten positions are in the same
industry.

The following are our largest ten portfolio positions as of December 31:

% of Net
Company Industry Assets
Canandaigua Brands,Inc. Beverages 10.6%
Standard Pacific Corp. Building 6.9%
Airborne Freight Corp. Air Transport 6.4%
Yellow Corp. Transportation/Freight 4.4%
Best Buy Co. Retail 4.4%
Neomagic Corp. Data Processing Hardware 4.0%
Accustaff Inc. Services 3.5%
Hexel Corp. Aerospace 3.2%
PSC Inc. Electronics/Electric 2.9%
Medco Research Inc. Drugs-Generic and OTC 2.7%
Total 49.1%

A full schedule of all investments is included with the semi-annual
financial statements attached. The top industries are data processing
hardware (15.5%), beverages (10.3%), and oil and gas (8.7%).

Taxes

Translation: If you can invest in this Portfolio through any non-taxable
vehicle, such as an IRA, you can save significantly on your tax bill. Last
year this would have saved 3.2% of your investment if you pay taxes at the
top rate. I figure we have to beat the Russell 2000 Index (the index most
comparable in size to your Portfolio) by about 2.1% in a "normal" year
before taxes and after Portfolio expenses (which is the way you always see
it reported) to justify our active management of the Portfolio in a taxable
account. We've been very successful at this so far, although we've lagged
relative to the S&P 500 Index of large stocks. (Warning: if conversations
about taxes give you indigestion, fast forward to "Conclusion.")

It's that (tax) time of year again. One Bridgeway Fund shareholder phoned
recently to report he was happy with our overall returns, but asked if we
couldn't keep the turnover and resulting capital gains down. This raises
several important questions, so I thought I would briefly try to address
the tax efficiency of our Portfolio.

Let's take a look at our actual experience in 1997. The taxable year for
mutual funds is the beginning of November to the end of October the
following year. From 11/1/96 to 10/31/97, the total return of your fund
was 28.8%. During the same period, we had realized capital gains equal to
14.1% of average net assets. A very rough way of looking at the tax issue
is that we realized, in capital gains, 14.1 divided by 28.8 equals 49% of
the total return. For an actively managed portfolio that has an annual
turnover of over 100%, this is reasonably tax efficient. The bad news is
that about two-thirds of the realized capital gains were short-term, taxed
to you at a rate up to 39.6% for our wealthier shareholders. Getting back
to the 1997 example, if you use our actual dividend distribution and top
tax rates, the tax bill would equal 3.2% of the value of your account on
the distribution date. (Due to a quirk in mutual fund accounting,
investments made at the beginning of the tax year get a bit of a free ride
in a growing portfolio, since incoming shareholders dilute part of their
tax burden; otherwise, the tax burden would have been higher.)

To summarize, a 3.2% tax on a 29% total return may not sound too bad. But
most years will certainly not include a return this high (indeed, for the
calendar year 1997 our return was a lower 18%). So let's take a look at
what a more conservative year might look like.

For the purpose of this analysis, let us assume the average annual return
of the class of stocks we invest in is 12% and forget the fact we have
significantly outperformed this comparable index so far. If we assume our
capital gains to be 50% of this amount and that these are taxed at an
average 35% rate, the tax bill would be 12 x .5 x .35 = 2.1%. This means
we have to add 2.1% more return through our active management. This is
actually a fairly high hurdle by industry standards, but according to the
table on page one, we have beaten the Russell 2000 Index by 4.9%/year so
far. Another factor one might want to throw into such an analysis is the
difference in expense ratios, which is higher for actively managed funds.
The difference in expense ratios between Bridgeway Aggressive Growth
Portfolio and a Russell 2000 Index mutual fund is 1.9% minus 0.25% = 1.65%.
So, assuming all else is equal, we have to beat the index (before
subtracting the Portfolio expenses) by 2.1% (for taxes) plus 1.65% (for the
higher expense ratio) equals a fairly high 3.75% to make it worthwhile to
stay in this actively managed portfolio in a taxable account at the highest
tax rate. (This analysis assumes an index fund distributes no capital
gains, which isn't true; but it should be much lower.) Right now all my
exposure to the Aggressive Growth Portfolio is through my IRA (so I'm not
paying taxes), but even if I had money in a taxable account, I'd stay put.
However, I thought you should understand the significant effect taxes can
have.

Now for answers to some specific questions this analysis raises:

Can't we keep the turnover down? Unfortunately, most (not all) of the
models we use have a fairly high turnover. There is a significant cost in
commissions, other trading costs, and taxes, so if I could, I would. So
far, however, I believe our returns justify the additional turnover even in
a taxable account.

Should I hold shares of the Portfolio in a taxable or non-taxable account?
By all means in a non-taxable account, such as an IRA, if at all possible.
How much should I expect to pay in taxes? This varies with a number of
factors, such as our return for a given period, the percentage of gains we
actually take (or "realize"), and your actual marginal tax rate. The
analysis above indicated a tax of 2.1% based on returns lower than what we
have experienced. The actual tax in 1997 at the highest tax rate was 3.2%
of your investment and would have been higher if the Portfolio had not been
growing through new shareholder investments.

Should I invest in an index fund to keep my taxes down? I can't give
specific advice on this, since I don't know your specific situation nor
future returns of our portfolio. However, based on my own analysis and
projections, I would stay put, even if my money were invested in a taxable
account. Nevertheless, for someone really averse to paying taxes, I would
recommend looking at Bridgeway Ultra-Large 35 Index Portfolio, which seeks
to distribute no capital gains and has the lowest expense ratio of any
mutual fund in the country. Also, Bridgeway Ultra-Small Index Portfolio is
a good index alternative for people looking for small company stock
exposure.

Conclusion

Sincerely,

John Montgomery
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC. - AGGRESSIVE GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
As of December 31, 1997

<S> <C>
Assets:
Investments at value (cost - $5,340,016) $5,453,043
Cash 67,561
Receivable for interest 217
Receivable for dividends 1,862
Receivable from adviser 83
Prepaid expenses 7,387
Deferred organization costs 6,679
------------------
Total assets 5,536,832
------------------

Liabilities:
Payable for shares redeemed 7,244
Payable for management fee 136
Payable for organization costs 6,691
Accrued expenses 11,279
------------------
Total liabilities 25,350
------------------
Net Assets ( 304,293 shares outstanding) $5,511,482
==================
Net asset value, offering and redemption price per share $18.11
==================
Net Assets Represent:
Paid-in capital $5,197,520
Undistributed net realized gain 200,935
Net unrealized appreciation of investments 113,027
------------------
Net assets $5,511,482
==================

</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS (Unaudited)
For the six months ended December 31, 1997

<S> <C>
Investment income:
Dividends $7,384
Interest 5,702
------------------
Total income 13,086
Expenses:
Management fees 28,197
Accounting fees 19,600
Audit fees 3,363
Custody 2,655
Amortization of organization costs 2,230
Insurance 354
Legal 1,859
Registration fees 2,655
Director fees 333
Miscellaneous 53
------------------
Total expenses 61,299
Less fees waived (16,460)
------------------
Net expenses 44,839
------------------
Net investment loss (31,753)
Net realized and unrealized gain on investments:
Net realized gain on investments 438,058
Net change in unrealized appreciation during period (387,231)
------------------
Net realized and unrealized gain 50,827
Net increase in assets resulting from operations $19,074
==================

See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC. - AGGRESSIVE GROWTH PORTOLIO
STATEMENT OF CHANGES IN NET ASSETS (Unaudited)

Six months ended Year ended
Increase (decrease) in net assets: December 31, 1997 June 30, 1997
<S> <C> <C>
Operations:
Net investment loss ($31,753) ($33,138)
Net realized gain on investments 438,058 187,476
Net change in unrealized appreciation (387,231) 372,114
------------------ ------------------
Net increase resulting from operations 19,074 526,452
------------------ ------------------
Distributions to shareholders:
From net investment income 0 0
From realized gains on investments (455,464) (128,863)
------------------ ------------------
Total distributions to shareholders (455,464) (128,863)
Fund share transactions:
Proceeds from sale of shares 3,243,216 2,150,757
Reinvestment of dividends 451,952 123,538
Cost of shares redeemed (1,167,786) (753,879)
------------------ ------------------
Net increase from Fund share transactions 2,527,382 1,520,416
------------------ ------------------
Net increase in net assets 2,090,992 1,918,005
Net assets:
Beginning of period 3,420,490 1,502,485
------------------ ------------------
End of period $5,511,482 $3,420,490
================== ==================

Number of Fund shares:
Sold 154,584 129,254

Issued on dividends reinvested 25,433 7,362
Redeemed (57,759) (44,758)
------------------ ------------------
Net increase 122,258 91,858
Outstanding at beginning of period 182,035 90,177
------------------ ------------------
Outstanding at end of period 304,293 182,035
================== ==================
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (Unaudited)
(for a share outstanding throughout the period)

Six months ended Year ended Year ended 8/5/94* to
December 31, 1997 June 30, 1997 June 30, 1996 June 30, 1995
<S> <C> <C> <C> <C>
Per share data
Net asset value, beginning of period $18.79 $16.66 $11.71 $9.89
------------------ ------------------ ------------------ ------------------
Income (loss) from investment operations:
Net investment loss (0.14) (0.24) (0.18) (0.02)
Net realized and unrealized gain 1.09 3.43 5.22 1.84
------------------ ------------------ ------------------ ------------------
Total from investment operations 0.95 3.19 5.04 1.82
------------------ ------------------ ------------------ ------------------
Less distributions to shareholders:
Net investment income 0.00 0.00 0.00 0.00
Net realized gains (1.63) (1.06) (0.09) 0.00
------------------ ------------------ ------------------ ------------------
Total distributions (1.63) (1.06) (0.09) 0.00
------------------ ------------------ ------------------ ------------------
Net asset value, end of period $18.11 $18.79 $16.66 $11.71
================== ================== ================== ==================

Total return [1] 5.2% 19.9% 43.3% 19.5%
Ratios & Supplemental Data
Net assets, end of period $5,511,482 $3,420,490 $1,502,485 $276,272
Ratios to average net assets: [2]
Expenses net of waivers and reimbursements 1.96% 2.00% 1.97% 1.86%
Expenses before waivers and reimbursements 2.69% 2.77% 5.73% 16.15%
Net investment income (loss) (1.39%) (1.40%) (1.26%) (0.30%)
Commission Cost/Share $0.0103 $0.0135
Portfolio turnover rate [2] 139.0% 138.9% 167.7% 139.9%

[1] Not annualized for periods less than a year.
[2] Annualized for periods less than a year.
* August 5, 1994 was commencement of operations.

See accompanying notes to financial statements.
</TABLE>
<PAGE>

BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS

1. Organization:

2.Significant Accounting Policies:

The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.

Securities Valuation

Federal Income Taxes

Deferred Organization Costs

At December 31, 1997, the Aggressive Growth Portfolio had deferred
organization costs in the amount of $6,691 payable to Bridgeway Capital
Management, Inc.

Distributions to Shareholders

During the year ended June 30, 1997, the Ultra-Small Company and the
Aggressive Growth Portfolios did not pay sufficient dividends and
distributions from net investment income and from net capital gains
generated during the year ended June 30, 1996. The Ultra-Small Company and
the Aggressive Growth Portfolios intend to petition the Internal Revenue
Service for permission to make such deficient distributions during the year
ended June 30, 1998. Taxpayers would be taxed on these
distributions in the year received. Based upon management's
assessment, the interest and penalties related to these deficient
distributions are expected to be approximately $26,000. The Adviser has
committed to pay the interest and penalties and all other costs associated
with resolving the deficiency for the portfolios. No assurance can be
given as to whether the Internal Revenue Service will accept the petition.

Use of Estimates in Financial Statements

12b-1 Plan

Other

3. Use of Derivative Instruments:

The Aggressive Growth Portfolio may use derivative securities as outlined
more fully under "Risk Factors," "Investment Objective and Policies," and
"Principal Investment Restrictions," in the Prospectus. Buying calls
increases a Portfolio's exposure to the underlying security. Buying puts
on a stock market index tends to limit a Portfolio's exposure to a stock
market decline. All options purchased by the Fund were listed on exchanges
and considered liquid positions with readily available market quotes. A
summary of transactions in options by the Aggressive Growth Portfolio
follows:

Call Options Put Options
Number Number
of calls Cost of Puts Cost

Options outstanding 6/30/97 24 $44,454 0 $0
Options split 12 $0 0 $0
Options purchased 45 $16,976 0 $0
Options expired 0 $0 0 $0
Options exercised (11) ($5,788)
Options closed (25) ($38,666) 0 $0

Outstanding at 12/31/97 45 $16,976 0 $0

4. Management Contract:

The Fund has entered into a management contract with Bridgeway Capital
Management, Inc. (the Adviser"), a shareholder of the Fund. As
compensation for the advisory services rendered, facilities furnished, and
expenses borne by Bridgeway Capital Management, Inc., the Aggressive Growth
Portfolio and the Social Responsibility Portfolio pay Bridgeway Capital
Management, Inc. a fee, computed and paid monthly based on the average
daily net assets of each portfolio for the month. Such fee is based on the
following annual rates: 0.90% of the first $250 million of each
portfolio's average daily net assets, 0.875% of the next $250 million and
0.85% of any excess over $500 million.

The fee is adjusted quarterly for the Aggressive Growth and the Social
Responsibility Portfolios based upon performance. The performance
adjustment rate varies with the Fund's performance as compared to the
performance of the Standard & Poor's 500 Composite Stock Price Index with
dividends reinvested (hereinafter "Index" ) and ranges from -.7% to +.7%.
The performance rate adjustment is calculated at 4.76% of the difference
between the performance of the Fund and that of the Index over the trailing
five year period, except that there is no performance adjustment if the
difference between the Fund performance and the Index performance is less
than or equal to 2%.

5.Related Party Transactions:

One director of the Fund, John Montgomery, is an owner and director of the
Adviser. Under the Investment Company Act of 1940 definitions, he is
considered to be "affiliated" and "interested." Compensation of Mr.
Montgomery is borne by the Adviser rather than the Fund. The other
officers are employees of the Adviser and the portion of their compensation
attributable to fund accounting, shareholder accounting and state
registration services is paid by the Fund and is included in the Accounting
fees and Registration fees expense categories of the financial statements.

The Adviser has been voluntarily reimbursing the Aggressive Growth
Portfolio for any operating expenses above 2.0% and expects to continue
this voluntary level of reimbursement, if necessary, indefinitely. The
Adviser has waived a portion of its management fee.

6.Custodial Agreement:

7.Cost, Purchases and Sales of Investment Securities:

Investments have the same cost for tax and financial statement purposes.
Aggregate purchases were $4,873,934 and sales of investment securities,
other than cash equivalents were $2,870,509.

<PAGE>
February 15, 1998

Dear Fellow Social Responsibility Shareholder,

Our Portfolio financial performance in the December quarter was good--up
2.0%--during a time of some market turmoil following the Southeast Asia
financial crisis. This performance beat Lipper's Growth and Income Funds
average by one percent, but trailed the S&P 500 Index by one percent. For
the calendar year we had a very strong 27.5% return, which nearly matched
the Lipper index (+27.7%) , but trailed the S&P 500 (+33.4%).

Performance Summary

The following table presents SEC standardized performance for the December
quarter, one year, and life-to-date**:

Dec. Qtr. 1 Year Life-to-Date
9/30/97 12/31/96 8/5/94 to
to 12/31/97 to 12/31/97 12/31/97**

Social Responsibility Portfolio 2.0% 27.5% 21.8%
S&P 500 Index (large stocks)* 2.9% 33.4% 27.6%
Lipper Growth and Income Funds* 1.0% 27.7% 22.5%

*The S&P 500 is an unmanaged index of large stocks, with dividends
reinvested. The Lipper Growth and Income Funds reflect the aggregate record
of domestic growth and income mutual funds as reported by Lipper Analytical
Services, Inc. Past performance does not guarantee future returns.
** Life-to-date returns are annualized; quarterly returns are not
annualized.

Explanation of Financial Performance

Translation: Healthcare stocks accounted for our three best stocks in the
December quarter, but also our worst quarterly experience with a stock ever.
These pretty much offset each other.

All of the Portfolio major moves came in the healthcare sector. Safeskin, a
maker of hypoallergenic medical disposable gloves, lead the way with a 28%
gain. This company was followed by Pfizer (pharmaceuticals, up 24%) and
Sofamore Danek (spinal implant devices, up 21%). This would have been
enough to carry the portfolio to a great quarter, except for the performance
of . . .

Vivus Corporation. This young company is involved in the development of
advanced therapeutic systems for treatment of impotence. With its first
product doing very well in the marketplace, no debt, very strong cash flow,
and good near-term prospects, the company was up 21% last quarter. However,
it hit a rough spot in expanding its production capacity and is still
awaiting regulatory approval of a new facility. As a result, it did not
meet production goals in the December quarter. Two of three analysts now
expect the company to show a loss for one (but only one) quarter in 1998.
The bottom dropped out from under this stock's price (down an astonishing
72%). Our models say this stock is now greatly undervalued (unless, of
course, there is considerably more bad news coming). This is the worst
performing stock in the history of our Portfolio--but we're still holding
and the story may not be over yet. The company ranks extremely high by our
social criteria.

New Stock

A new stock this quarter was Ultra Pac, a leader in the design,
manufacturing, and marketing of plastic food packaging made from recycled
plastic material. Ultra Pac developed a process which allows them to use
more recycled plastic in their manufacturing process. Ultra Pac has one
manufacturing facility in the rural community of Rogers, Minnesota,
employing approximately 300 people. One of the largest employers in the
area, it is deeply rooted in the community itself, helping to provide such
amenities as the community ice skating facility and employee participation
in career path counseling at the local high school. The company has
demonstrated progressive policies in the areas of safety and employee
grievances. Ultra Pac is also continually working to find more cost
effective and energy efficient ways to run their manufacturing facilities
including replacing plant motors with high efficiency models and working
with the local utilities to lower energy costs.

Large Stocks/Small Stocks?

Translation: Our Portfolio still focuses primarily on larger, more stable,
mostly U.S. companies.

With the exception of Pfizer, the description of the stocks above might lead
you to believe our portfolio has shifted toward a small-cap, more risky,
focus. We did decide to expand the universe of stocks we could consider
purchasing last year by augmenting the Council on Economic Priorities'
social research with our own. In doing this, we have added some smaller
diversifying positions of small stocks, building upon our expertise in this
area. Nevertheless, the vast majority of our portfolio is still comprised
of large, stable companies. I would not consider any of our top ten
holdings (next section) to be small stocks. Morningstar still lists us as a
large-cap "blended" portfolio, and we add smaller companies in a way I would
describe as risk averse. Having said this, in any one quarter, it is the
smaller companies that are more likely to make large moves up or down, so
that I may write about their financial performance more frequently. I might
also add that some companies you may not have heard of are quite large by
Bridgeway's standards. Sofamore Danek, for example, is listed on the New
York Stock Exchange, has a market capitalization 26 times the average
company in our Ultra-Small Company Portfolio and had sales of over $300
million last year.

Largest Positions

The following are our largest ten portfolio positions on December 31, 1997:

Company % of Net Assets Industry

Sofamore Danek 5.5% Medical equipment
Safeskin 5.1% Medical equipment
Herman Miller 5.1% Retail Stores
The Gap, Inc. 4.9% Retail Stores
AES Corporation 4.2% Services
Dayton Hudson 4.0% Retail Stores
Safeway Stores, Inc. 3.9% Retail Stores
Sony Corp. 3.5% Electronics/Electric
MBNA Corp. 3.3% Banking
Student Loan Marketing 3.3% Finance
Total 42.9%

Our largest Portfolio industry concentration is retail stores (22%) followed
by medical equipment (13%) and pharmaceuticals (9%). The enclosed semi-
annual financial statement contains a complete listing of all Portfolio
securities by industry.
<PAGE>

Disclaimer

The following is a reminder from the friendly folks at your fund who worry
about liability. The views expressed here are exclusively those of Fund
management. They are not meant as investment advice. Any favorable (or
unfavorable) description of a holding applies only as of the quarter end,
December 31, 1997; security positions can and do change thereafter.

Conclusion

Sincerely,

John Montgomery
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC. - SOCIAL RESPONSIBILITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
As of December 31, 1997

<S> <C>
Assets:
Investments at value (cost - $731,631) $896,143
Cash 27,483
Receivable for interest 318
Receivable for dividends 239
Receivable from adviser 64
Prepaid expenses 3,379
Deferred organization costs 6,268
------------------
Total assets 933,894
------------------

Liabilities:
Payable for management fee 23
Payable for organization costs 6,279
Accrued expenses 9,570
------------------
Total liabilities 15,872
------------------
Net Assets ( 52,794 shares outstanding) $918,022
==================
Net asset value, offering and redemption price per share $17.39
==================

Net Assets Represent:
Paid-in capital $755,355
Net realized loss (1,845)
Net unrealized appreciation of investments 164,512
------------------
Net assets $918,022
==================

</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS (Unaudited)
For the six months ended December 31, 1997

<S> <C>
Investment income:
Dividends $2,656
Interest 3,973
------------------
Total income 6,629

Expenses:
Management fees 2,563
Accounting fees 6,695
Audit fees 3,363
Custody 354
Amortization of organization costs 2,225
Insurance 71
Legal 159
Registration fees 1,770
Director fees 333
Miscellaneous 53
------------------
Total expenses 17,586
Less fees waived (8,758)
Less expenses reimbursed (2,693)
------------------
Net expenses 6,135
------------------

Net investment income 494
------------------

Net realized and unrealized gain on investments:
Net realized gain on investments 33,437
Net change in unrealized appreciation during period 46,377
------------------
Net realized and unrealized gain 79,814

Net increase in assets resulting from operations $80,308
==================

See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC. - SOCIAL RESPONSIBILITY PORTOLIO
STATEMENT OF CHANGES IN NET ASSETS (Unaudited)

Six months ended Year ended
Increase (decrease) in net assets: December 31, 1997 June 30, 1997
<S> <C> <C>
Operations:
Net investment income $494 $1,064
Net realized gain on investments 33,437 8,591
Net change in unrealized appreciation 46,377 71,190
------------------ ------------------
Net increase resulting from operations 80,308 80,845
------------------ ------------------
Distributions to shareholders:
From net investment income (547) 0
From realized gains on investments (30,883) (21,520)
------------------ ------------------
Total distributions to shareholders (31,430) (21,520)
Fund share transactions:
Proceeds from sale of shares 217,110 254,732
Reinvestment of dividends 28,882 21,520
Cost of shares redeemed (14,777) (58,608)
------------------ ------------------
Net increase from Fund share transactions 231,215 217,644
------------------ ------------------
Net increase in net assets 280,093 276,969
Net assets:
Beginning of period 637,929 360,960
------------------ ------------------
End of period $918,022 $637,929
================== ==================

Number of Fund shares:
Sold 12,611 17,127

Issued on dividends reinvested 1,681 1,556
Redeemed (861) (3,911)
------------------ ------------------
Net increase 13,431 14,772
Outstanding at beginning of period 39,363 24,591
------------------ ------------------
Outstanding at end of period 52,794 39,363
================== ==================
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (Unaudited)
(for a share outstanding throughout the period)

Six months ended Year ended Year ended 8/5/94* to
December 31, 1997 June 30, 1997 June 30, 1996 June 30, 1995
<S> <C> <C> <C> <C>
Per share data
Net asset value, beginning of period $16.21 $14.68 $11.61 $9.85
------------------ ------------------ ------------------ ------------------
Income (loss) from investment operations:
Net investment loss 0.01 0.03 (0.02) 0.07
Net realized and unrealized gain 1.81 2.31 3.11 1.70
------------------ ------------------ ------------------ ------------------
Total from investment operations 1.82 2.34 3.09 1.77
------------------ ------------------ ------------------ ------------------
Less distributions to shareholders:
Net investment income (0.01) 0.00 (0.02) (0.01)
Net realized gains (0.63) (0.81) 0.00 0.00
------------------ ------------------ ------------------ ------------------
Total distributions (0.64) (0.81) (0.02) (0.01)
------------------ ------------------ ------------------ ------------------
Net asset value, end of period $17.39 $16.21 $14.68 $11.61
================== ================== ================== ==================

Total return [1] 11.3% 16.9% 26.6% 18.9%
Ratios & Supplemental Data
Net assets, end of period $918,022 $637,929 $360,960 $64,421
Ratios to average net assets: [2]
Expenses net of waivers and reimbursements 1.50% 1.50% 1.48% 1.46%
Expenses before waivers and reimbursements 4.30% 5.81% 16.80% 72.83%
Net investment income (loss) 0.12% 0.24% (0.17%) 0.90%
Commission Cost/Share $0.0100 $0.0090
Portfolio turnover rate [2] 41.1% 35.5% 83.8% 71.7%

[1] Not annualized for periods less than a year.
[2] Annualized for periods less than a year.
* August 5, 1994 was commencement of operations.

See accompanying notes to financial statements.
</TABLE>
<PAGE>

BRIDGEWAY FUND, INC.
SOCIAL RESPONSIBILITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS

1. Organization:

2.Significant Accounting Policies:

The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.

Securities Valuation

Federal Income Taxes

Deferred Organization Costs

At December 31, 1997, the Social Responsibility Portfolio had deferred
organization costs in the amount of $6,279 payable to Bridgeway Capital
Management, Inc.

Distributions to Shareholders

Use of Estimates in Financial Statements

12b-1 Plan

Other

Assets in the Social Responsibility Portfolio are very low, and may remain
so in the immediate future. Because commission cost per trade is
unacceptably high as a percentage of assets, the Adviser reimburses this
Portfolio for any commissions above one cent/share. The Adviser expects to
continue this practice until portfolio net assets reach at least $2
million.

3. Use of Derivative Instruments:

The Social Responsibility Portfolio may use derivative securities as
outlined more fully under "Risk Factors," "Investment Objective and
Policies," and "Principal Investment Restrictions," in the Prospectus.
Buying calls increases a Portfolio's exposure to the underlying security.
Buying puts on a stock market index tends to limit a Portfolio's exposure
to a stock market decline. All options purchased by the Fund were listed
on exchanges and considered liquid positions with readily available market
quotes. The Social Responsibility Portfolio had no derivative transactions
during the six months ended December 31, 1997.

4. Management Contract:

5. Related Party Transactions:

One director of the Fund, John Montgomery, is an owner and director of the
Adviser. Under the Investment Company Act of 1940 definitions, he is
considered to be "affiliated" and "interested." Compensation of Mr.
Montgomery is borne by the Adviser rather than the Fund. The other
officers are employees of the Adviser and the portion of their compensation
attributable to fund accounting, shareholder accounting and state
registration services is paid by the Fund and is included in the Accounting
fees and Registration fees expense categories of the financial statements.

The Adviser has been voluntarily reimbursing the Social
Responsibility Portfolio for any operating expenses above 1.5% and
expects to continue this voluntary level of reimbursement, if necessary,
indefinitely. To achieve this expense level the Adviser has waived both the
management fees and accounting fees for the six months ended December 31,
1997.

6.Custodial Agreement:

7.Cost, Purchases and Sales of Investment Securities:

Investments have the same cost for tax and financial statement purposes.
Aggregate purchases were $285,425 and sales of investment securities, other
than cash equivalents were $117,537.
<PAGE>
February 16, 1998

Dear Ultra-Large 35 Index Portfolio Shareholder,

Welcome as an Ultra-Large 35 Index Portfolio shareholder! This is my first
shareholder letter, as this Portfolio is new, and mostly, unheard of. You
are one of the few; but that doesn't stop your investment from being the
largest capitalization, lowest expense retail mutual fund in America.

Our performance during the first five months from inception through
December, 1997 was flat, returning 0.0%. Our net asset value ended the
period exactly where it started.

Performance Summary

The following table presents SEC standardized performance for the first
five months of operations from July 31, 1997 to December 31, 1997**:

Life-to-Date
7/31/97 to
12/31/97**

Ultra-Large 35 Index Portfolio 0.0%
S&P 500 Index* 2.3%
Bridgeway Ultra-Large 35 Index* 0.2%

*The S&P 500 Index is an unmanaged index of large companies (with dividends
reinvested). The Bridgeway Ultra-Large 35 Index is an index comprised of
some of the very largest, "blue chip" U.S. stocks, excluding tobacco; it is
compiled by the advisor to the Portfolio. Past performance does not
guarantee future returns.
** Returns are not annualized.

Explanation of Portfolio Performance

Translation: Telecommunications was up. Technology was down. Overall we
were flat.

Technology stocks took it on the chin in the December quarter, and several
of our stocks were hit particularly hard. Twenty percent of the Portfolio
is invested in computer software, computer hardware, and electronics. This
compares to a 13% technology exposure for the S&P 500. The three companies
with the largest drag on the Portfolio performance were Oracle (-39%),
Motorola (-29%), and Intel (-24%).

On the other end of the spectrum, three of our top four performing stocks
were telecommunications companies, offsetting the technology. These were
AT&T (+67%), Bell Atlantic (+25%), and SBC Communications (+24%). Our
other very strong performer was Pfizer (+25%).

Explanation of Index Performance

The performance of the Bridgway Ultra-Large 35 Index was two percent less
than that of the S&P 500 over the first five months of operations. Since
there is a significant difference in market capitalization, such
divergences can occur. So far in 1998 (less than two months), Bridgeway
Ultra-Large 35 Index leads the S&P 500 Index (including dividends) by 1.7%.
I do expect to see such variance both up and down.

Direction of the Market, State of the Economy, Blah, Blah, Blah
Most mutual fund shareholder letters will go on and on about the economy,
market, and other things which fund management has no control over and next
to no chance of predicting. Not so here.

If you're a brand new Bridgeway shareholder, you may not know about part of
our investment philosophy. We believe stock market investing, and indexing
in particular, are long-term undertakings. Based on our own research and
the research of others, we believe you are not well served trying to time
either the stock market or the overall economy. We spend zero time at
Bridgeway trying to predict either one. The disadvantage is that when the
market goes down, your Portfolio will most assuredly go down with it. The
advantage is that you won't get left out when the market appreciates (here,
when large companies appreciate), which has historically been a rather
amazing long-term trend.

With the time and resources we save not worrying about the economy, stock
market, and health of these 35 very fine companies, we pass on a lot of the
savings to you. This is one of many reasons for our outrageously low
expense ratio. Another advantage of not worrying about the economy or
market is that I'm able to leave work at work and go home to dinner. As I
put this letter to bed and go home, I pity the poor portfolio managers and
professional mutual fund shareholder letter writers who are staying up
trying to figure out what to say about the federal reserve, Southeast Asia,
and economic growth rates. These may be interesting things, but I can't
hope to compete with the coverage you can get by reading the Wall Street
Journal, New York Times, or Economist.

Conclusion

I appreciate your feedback. We keep a bulletin board of shareholder
comments and suggestions and we take them very seriously. Please let us
know your thoughts.

Sincerely,

John Montgomery
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC. - ULTRA-LARGE 35 INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
As of December 31, 1997

<S> <C>
Assets:
Investments at value (cost - $141,167) $145,580
Cash 2,119
Receivable for dividends 92
Receivable from adviser 1,526
Deferred organization costs 4,147
------------------
Total assets 153,464
------------------

Liabilities:
Payable for investments purchased 2,707
Payable for organization costs 4,147
Accrued expenses 939
------------------
Total liabilities 7,793
------------------
Net Assets ( 29,139 shares outstanding) $145,671
==================
Net asset value, offering and redemption price per share $5.00
==================

Net Assets Represent:
Paid-in capital $141,241
Undistributed net realized gain 17
Net unrealized appreciation of investments 4,413
------------------
Net assets $145,671
==================
</TABLE>
<TABLE>
<CAPTION>

STATEMENT OF OPERATIONS (Unaudited)
From inception (July 31, 1997) to December 31, 1997

<S> <C>
Investment income:
Dividends $333
------------------

Expenses:
Management fees 21
Accounting fees 1,299
Amortization of organization costs 379
------------------
Total expenses 1,699
Less fees waived (1,320)
Less expenses reimbursed (339)
------------------
Net expenses 40
------------------

Net investment income 293
------------------

Net realized and unrealized gain on investments:
Net realized gain on investments 17
Net change in unrealized appreciation during period 4,413
------------------
Net realized and unrealized gain 4,430

Net decrease in assets resulting from operations $4,723
==================

See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC. - ULTRA-LARGE 35 INDEX PORTOLIO
STATEMENT OF CHANGES IN NET ASSETS (Unaudited)

July 31, 1997* to
Increase (decrease) in net assets: December 31, 1997
<S> <C>
Operations:
Net investment income $293
Net realized gain on investments 17
Net change in unrealized depreciation 4,413
------------------
Net increase resulting from operations 4,723
------------------
Distributions to shareholders:
From net investment income 0
From realized gains on investments 0
------------------
Total distributions to shareholders 0
Fund share transactions:
Proceeds from sale of shares 142,336
Reinvestment of dividends 0
Cost of shares redeemed (1,388)
------------------
Net increase from Fund share transactions 140,948
------------------
Net increase in net assets 145,671
Net assets:
Beginning of period 0
------------------
End of period $145,671
==================

Number of Fund shares:
Sold 29,427
Issued on dividends reinvested 0
Redeemed (288)
------------------
Net increase 29,139
Outstanding at beginning of period 0
------------------
Outstanding at end of period 29,139
==================

</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (Unaudited)
(for a share outstanding throughout the period)

July 31, 1997* to
December 31, 1997
<S> <C>
Per share data
Net asset value, beginning of period $5.00
------------------
Income (loss) from investment operations:
Net investment loss 0.02
Net realized and unrealized gain (0.02)
------------------
Total from investment operations 0.00
------------------
Less distributions to shareholders:
Net investment income 0.00
Net realized gains 0.00
------------------
Total distributions 0.00
------------------
Net asset value, end of period $5.00
==================

Total return [1] 0.0%
Ratios & Supplemental Data
Net assets, end of period $145,671
Ratios to average net assets: [2]
Expenses net of waivers and reimbursements 0.15%
Expenses before waivers and reimbursements 6.45%
Net investment income (loss) 1.11%
Commission Cost/Share $0.0100
Portfolio turnover rate [2] 0.2%

[1] Not annualized.
[2] Annualized.
* July 31, 1997 was initial offering.

See accompanying notes to financial statements.
</TABLE>
<PAGE>

BRIDGEWAY FUND, INC.
ULTRA-SMALL INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS

1. Organization:

2.Significant Accounting Policies:

The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.

Securities Valuation

Federal Income Taxes

Deferred Organization Costs

At December 31, 1997, the Ultra-Small Index Portfolio had deferred
organization costs in the amount of $4,147 payable to Bridgeway Capital
Management, Inc.

Distributions to Shareholders

Use of Estimates in Financial Statements

12b-1 Plan

Other

3. Management Contract:

The Ultra-Small Index Portfolio pays a flat 0.5% annual management fee,
computed daily and payable monthly subject to a maximum expense ratio of
0.75%.

4. Related Party Transactions:

One director of the Fund, John Montgomery, is an owner and director of the
Adviser. Under the Investment Company Act of 1940 definitions, he is
considered to be "affiliated" and "interested." Compensation of Mr.
Montgomery is borne by the Adviser rather than the Fund. The other
officers are employees of the Adviser and the portion of their compensation
attributable to fund accounting, shareholder accounting and state
registration services is paid by the Fund and is included in the Accounting
fees and Registration fees expense categories of the financial statements.

5.Custodial Agreement:

6.Cost, Purchases and Sales of Investment Securities:

Investments have the same cost for tax and financial statement purposes.
Aggregate purchases were $139,316 and sales of investment securities, other
than cash equivalents were $55.
<PAGE>