June 5, 1998
Filing Desk
U.S. Securities and Exchange Commission
450 Fifth St., N.W.
Washington, D.C. 20549
RE: Bridgeway Fund, Inc.
40 Act Reg. No. 811-8200
33 Act File No. 33-72416
Post-Effective Amendment No. 8
Dear Ms Williams,
Pursuant to the requirements of the Securities Act of 1933 (the "33
Act") and the Investment Company Act of 1940, more specifically the
registration requirements and Rule 485 (b) of the 33 Act, and EDGAR
requirements, we are herewith filing electronically post-effective
amendment Form N-1A. A courtesy "red-lined" paper copy is
concurrently being sent to our SEC examiner.
As discussed prospectively in our Post-Effective Amendment No. 7, this
amendment includes an amendment to our custodial agreement and an update to
historical stock market data in our Statement of Additional Information.
We are also changing the beginning of our new portfolio subscription
period from June 17 to June 22, along with other minor changes.
Sincerely yours,
John Montgomery
President
<PAGE>
File No. 33-72416
As filed with the Securities and Exchange Commission on March 19, 1998
=======================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. __
Post-Effective Amendment No. 8
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 8
BRIDGEWAY FUND, INC.
(Exact name of Registrant as Specified in Charter)
5650 Kirby Drive, Suite 141, Houston, Texas 77005-2443
(Address of Principal Executive Office)
(713) 661-3500
(Registrant's Telephone Number, Including Area Code)
JOHN N.R. MONTGOMERY, PRESIDENT
Bridgeway Capital Management, Inc.
5650 Kirby Drive, Suite 141, Houston, Texas 77005-2443
(Name and Address of Agent for Service)
Approximate Date of Proposed Offering: As soon as practical after the
effective date of this Registration Statement under the Securities Act
of 1933.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Pursuant to Section 24(f) of the Investment Company Act of 1940 and Rule
24f-2 thereunder, the Registrant hereby declares that an indefinite
number of its shares of beneficial interest is being registered by this
Registration Statement.
========================================================================
It is proposed that this filing will become effective
[ X] immediately pursuant to paragraph (b)
========================================================================
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement thereafter becomes effective in accordance
with Section 8(a) of the Securities Act of 1933 or until this
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
If appropriate, check the following box: [ ] This post effective
amendment designates a new effective date for a previously filed PEA.
Page 1 of _____pages
Exhibit Index Page _____
<PAGE>
BRIDGEWAY FUND, INC.
ULTRA-SMALL COMPANY (closed)
ULTRA-SMALL INDEX
MICRO-CAP LIMITED (new)
AGGRESSIVE GROWTH
SOCIAL RESPONSIBILITY
ULTRA-LARGE 35 INDEX
PROSPECTUS June 5, 1998
BRIDGEWAY CAPITAL MANAGEMENT, INC.
INVESTMENT ADVISER
5650 KIRBY DRIVE, SUITE 141
HOUSTON, TX 77005-2443
713 661-3265
800-661-3550
[LOGO GRAPHIC OMITTED]
B R I D G E W A Y
<PAGE>
TABLE OF CONTENTS
Table of Fees and
Expenses...............................................2
Risk Factors...........................................4
Investment Objectives and Policies.....................6
Disclaimers............................................11
Redemption Reimbursement Fees..........................12
Principal Investment Restrictions......................12
Management of the Fund.................................13
Code of Ethics.........................................14
Distribution of Fund Shares............................16
How to Purchase Shares.................................16
Net Asset Value........................................18
How to Redeem Shares...................................18
Exchange Privilege.....................................19
Dividends and Tax Status...............................19
Performance Information................................20
General Information....................................21
PROSPECTUS June 5, 1998
BRIDGEWAY
FUND, INC.
Bridgeway Fund, Inc. (the "Fund") is a no-load, diversified, open-end
management investment company commonly referred to as a mutual fund. The
Fund is organized as a series fund and currently has six portfolios, Bridgeway
Ultra-Small Company Portfolio, Bridgeway Ultra-Small Index Portfolio,
Bridgeway Micro-Cap Limited Portfolio, Bridgeway Aggressive Growth
Portfolio, Bridgeway Social Responsibility Portfolio, and Bridgeway
Ultra-Large 35 Index Portfolio. All six have an investment objective of
providing total return (capital appreciation and current income), but
the first four primarily target capital appreciation. All are intended
as long-term investments. THE FUND STRONGLY DISCOURAGES SHORT-TERM
TRADING OF ITS SHARES. The Aggressive Growth Portfolio uses more
aggressive investment techniques, while the Ultra-Small Company, Ultra-
Small Index and Micro-Cap Limited Portfolios exhibit higher than average
short-term volatility. There can be no assurance that the Portfolios
will achieve their investment objectives. These Portfolios will pursue
their objectives by investing primarily in a diversified portfolio of
common stocks. The Aggressive Growth and Social Responsibility
Portfolios may use leverage (borrowing or derivatives), may hedge risk
with short sales, and may use other investment techniques. See: "Risk
Factors" (page 4) and Summary of Investment Techniques Used (page 12).
Shares of each portfolio are sold at their net asset value without a
sales charge, and there are no distribution charges paid by the Fund.
This prospectus concisely sets forth the information about the Fund that
a prospective investor should seek to learn before investing. Investors
are advised to read this prospectus and retain it for future reference.
A Statement of Additional Information, dated June 5, 1998 has been filed
with the Securities and Exchange Commission and is available without any
charge by writing or calling the Fund at the address or phone number
listed on the back cover. The Statement of Additional Information is
incorporated into this prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF FEES AND EXPENSES
(for each portfolio)
ULTRA- ULTRA- MICRO- AGGRESSIVE SOCIAL ULTRA-
SMALL SMALL CAP GROWTH RESPON- LARGE
COMPANY INDEX LIMITED SIBILITY 35INDEX
SHAREHOLDER TRANSACTION EXPENSES:
- - ----------------------------------------------------------------------
- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load
Imposed on Purchase None None None None None None
Maximum Sales Load
Imposed on Reinvested
Distributions None None None None None None
Deferred Sales Load None None None None None None
Redemption Fees None None None None None None
Redemption Reimbursement
in Down Markets# None 2.0% None None None 2.0%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Management Fees
(after waivers)* 0.77% 0.50% 0.90% 0.45% 0.00% 0.08%
12b-1 Fees 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses (after
reimbursements
and waivers)** 0.90% 0.25% 1.00% 1.55% 1.50% 0.07%
Total Fund Operating
Expenses (after
reimbursements
and waivers) ** 1.67% 0.75% 1.90% 2.00% 1.50% 0.15%
</TABLE>
# See Redemption Reimbursement Fee on page 12.
*Management fees for the fiscal year ending June 30, 1997 before waivers
were 0.97%, 1.22%, and 0.35% for the Ultra-Small Company,
Aggressive Growth and Social Responsibility Portfolios,
respectively. Due to the performance fee adjustment feature contained in
the advisory contract, the management fee may be as low as 0.2% or as
high as 1.6% for the Aggressive Growth and Social Responsibility
Portfolios. The management fee for the Ultra-Small Company Portfolio
and the base fee for the Micro-Cap Limited Portfolio is a constant 0.9%
except that the fee or base fee for these two portfolios during the
period that the portfolios' net assets range from $27.5 to $55 million
will be a flat $495,000 annually, subject to a maximum rate of 1.49%.
The management fee will be a constant 0.5% for the Ultra-Small Index
Portfolio and 0.08% for the Bridgeway Ultra-Large 35 Index Portfolio.
(See Management of the Fund, page 13.)
**Other expenses for the fiscal year ending June 30, 1997 before
reimbursements and waivers were .90% for Ultra-Small Company, 1.55% for
Aggressive Growth, and 5.46% for Social Responsibility. Other expenses
for the Ultra-Small Index, Ultra-Large 35 Index and Micro-Cap Limited
Portfolios are estimated as they are new as of the date of this
prospectus. The Adviser has undertaken to reimburse the fund for any
operating expenses over 2.0% for Ultra-Small Company and Aggressive
Growth, 1.9% for the Micro-Cap Limited, 1.5% for Social Responsibility,
0.75% for Ultra-Small Index and 0.15% for Ultra-Large 35 Index through
at least June 30, 1999. Total fund operating expenses before
reimbursements and waivers during fiscal year 1997 were
1.87%, 2.77% and 5.81% of average net assets for the Ultra-Small
Company, Aggressive Growth and Social Responsibility Portfolios,
respectively.
Example:
You would pay the following expenses on a $1,000 investment assuming,
(1) expenses after reimbursement at the 6/30/97 rate of 2.0% for the Ultra-Small
Company and Aggressive Growth Portfolios, 1.5% for the Social Responsibility
Portfolio, 0.75% for the Ultra-Small Index Portfolio, 0.15% for the Ultra-Large
35 Index Portfolio, and 1.9% for the Micro-Cap Limited Portfolio, (2) a
5% annual return and (3) redemption at the end of each time period not
in a major market decline (see Redemption Reimbursement Fee on page 12):
<TABLE>
<CAPTION>
ULTRA-SMALL COMPANY MICRO-CAP SOCIAL ULTRA-SMALL ULTRA-LARGE
& AGGRESSIVE GROWTH LIMITED RESPONSIBILITY INDEX 35 INDEX
<C> <C> <C> <C> <C>
1 Year $20 1 Year $19 1 Year $15 1 Year $8 1 Year $2
3 Years $62 3 Years $61 3 Years $47 3 Years $23 3 Years $5
5 Years $106 5 Years $105 5 Years $80 5 Years $40 5 Years $8
10 Years $229 10 Years $228 10 Years $175 10 Years $90 10 Years $19
</TABLE>
<PAGE>
The amounts listed in this example should not be considered as
representative of future expenses, and actual expenses may be greater or
less than those indicated. Moreover, while the example assumes a 5%
return, the Fund's actual performance will vary and may result in an
actual return greater or less than 5%. The foregoing table is to assist
you in understanding the various direct and indirect costs and expenses
that an investor in the Fund would bear. Redemptions by mail (up to
four per year) incur no charges, but wire redemptions will incur a $15
charge to offset bank charges and administrative expense. Redemptions
on any day when the S&P 500 Index has declined more than 5% in the
previous 5 trading sessions may incur a 2% redemption fee (Bridgeway
Ultra-Small Index and Ultra-Large 35 Index Portfolios only) which
accrues to the Portfolio.
<TABLE>
<CAPTION>
BRIDGEWAY FUND, INC.
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the period)
<S> <C> <C> <C>
Year ended Year ended 8/5/94* to
June 30, 1997 June 30, 1996 6/30/95
Ultra-Small Company Portfolio
Per share data
Net asset value,
beginning of period $16.68 $11.35 $10.33
Income (loss) from
investment operations:
Net investment loss (0.24) (0.21) (0.04)
Net realized and unrealized gain 4.50 6.03 1.07
Total from investment operations 4.26 5.82 1.03
Less distributions to shareholders:
Net investment income 0.00 0.00 0.00
Net realized gains (0.32) (0.49) (0.01)
Total distributions (0.32) (0.49) (0.01)
Net asset value, end of period $20.62 $16.68 $11.35
Total return [1] 26.0% 52.4% 10.5%
Ratios & Supplemental Data
Net assets, end of period $30,070,202 $4,557,591 $667,536
Ratios to average net assets: [2]
Expenses net of waivers
and reimbursements 1.67% 1.97% 1.68%
Expenses before waivers
and reimbursements 1.87% 3.07% 8.34%
Net investment income (loss) (1.37%) (1.47%) (0.65%)
Commission Cost/Share $0.0097
Portfolio turnover rate [2] 56.2% 155.9% 103.6%
Aggressive Growth Portfolio
Per share data
Net asset value,
beginning of period $16.66 $11.71 $9.89
Income (loss) from investment operations:
Net investment loss (0.24) (0.18) (0.02)
Net realized and unrealized gain 3.43 5.22 1.84
Total from investment operations 3.19 5.04 1.82
Less distributions to shareholders:
Net investment income 0.00 0.00 0.00
Net realized gains (1.06) (0.09) 0.00
Total distributions (1.06) (0.09) 0.00
Net asset value, end of period $18.79 $16.66 $11.71
Total return [1] 19.9% 43.3% 19.5%
Ratios & Supplemental Data
Net assets, end of period $3,420,490 $1,502,485 $276,272
Ratios to average net assets: [2]
Expenses net of waivers
and reimbursements 2.00% 1.97% 1.86%
Expenses before waivers
and reimbursements 2.77% 5.73% 16.15%
Net investment income (loss) (1.40%) (1.26%) (0.30%)
Commission Cost/Share $0.0135
Portfolio turnover rate [2] 138.9% 167.7% 139.9%
Social Responsibility Portfolio
Per share data
Net asset value,
beginning of period $14.68 $11.61 $9.85
Income (loss) from investment operations:
Net investment income (loss) 0.03 (0.02) 0.07
Net realized and unrealized gain 2.31 3.11 1.70
Total from investment operations 2.34 3.09 1.77
Less distributions to shareholders:
Net investment income 0.00 (0.02) (0.01)
Net realized gains (0.81) 0.00 0.00
Total distributions (0.81) (0.02) (0.01)
Net asset value, end of period $16.21 $14.68 $11.61
Total return [1] 16.9% 26.6% 18.9%
Ratios & Supplemental Data
Net assets, end of period $637,929 $360,960 $64,421
Ratios to average net assets: [2]
Expenses net of waivers
and reimbursements 1.50% 1.48% 1.46%
Expenses before waivers
and reimbursements 5.81% 16.80% 72.83%
Net investment income (loss) 0.24% (0.17%) 0.90%
Commission Cost/Share $0.0090
Portfolio turnover rate [2] 35.5% 83.8% 71.7%
</TABLE>
[1] Not annualized for the period August 5, 1994 to June 30, 1995
[2] Annualized for the period August 5, 1994 to June 30, 1995
* August 5, 1994 was commencement of operations
See accompanying notes to financial statements.
The data set forth above has been audited by Coopers & Lybrand L.L.P.,
Independent Accountants, and the their report is included in the Statement of
Additional Information. For further information about the performance of the
fund, refer to the financial statements caption fo the Statement of Additional
Information.
<PAGE>
RISK FACTORS
The Ultra-Small Company and Ultra-Small Index Portfolios invest a
majority of total assets in the common stock of very small companies.
"Very small companies" are those with market capitalization the size of
the smallest 10% of those listed on the New York Stock Exchange (those
with $122 million market capitalization or less as of 12/31/97).
However, the majority of stocks in these Portfolios are listed on NASDAQ
rather than the New York Stock Exchange. The market price of very small
company shares may exhibit greater volatility than large company shares.
The Adviser believes no other mutual funds are committed to investing
long-term in companies this small. While ultra-small companies have
historically had a higher average annual return than large stocks over
the long term (25 years and more), they have also had commensurately
higher volatility. Therefore, shareholders of this portfolio are
exposed to above-average short-term risk.
On the downside, companies this small may have limited resources for
expanding or surviving in a newly competitive environment, may lack
depth of management, may have a limited product line, may lack market
"muscle," and may be more sensitive to economic downturns. On the
upside, such companies may be more maneuverable in the marketplace, less
bureaucratic, may respond quicker to changing market forces, may see a
successful product add more to "the bottom line" in percentage terms,
and when they survive an economic downturn, may "bounce back" faster.
While the Adviser attempts to limit some of the downside volatility,
inherent in this asset class in the Ultra-Small Company Portfolio
(only), shareholders of both ultra-small company portfolios should
expect significantly higher short-term price volatility than that
experienced by shareholders of most other funds. The Adviser believes
these Portfolios are more appropriate as a long term investment (at
least 5 years, but ideally 10 years or more) for shareholders who can
accommodate short-term price volatility, or as a diversifier to a
portfolio consisting primarily of larger stocks. They are not
appropriate investments for short-term investors or those trying to time
the market. (See "Frequent Trading of Fund Shares" on page 19.)
The Micro-Cap Limited Portfolio invests a majority of total assets in
the common stock of micro-cap companies. "Micro-cap companies" are
defined here as those with market capitalization the size of the second
smallest 10% of those listed on the New York Stock Exchange. As of
December 31, 1997, these were companies (including those on the American
Exchange and NASDAQ) with market capitalization between $122 and $253
million. The market price of micro-cap company shares may exhibit much
greater volatility than large company shares.
On the downside, companies this small may have limited resources for
expanding or surviving in a newly competitive environment, may lack
depth of management, may have a limited product line, may lack market
"muscle," and may be more sensitive to economic downturns. On the
upside, such companies may be more maneuverable in the marketplace, less
bureaucratic, may respond quicker to changing market forces, may see a
successful product add more to "the bottom line" in percentage terms,
and when they survive an economic downturn, may "bounce back" faster.
While the Adviser attempts to limit some of the downside volatility
inherent in this asset class in the Micro-Cap Limited Portfolio,
shareholders should expect significantly higher short-term price
volatility than that experienced by shareholders of most other funds.
The Adviser believes this Portfolio is more appropriate as a long term
investment (at least 5 years, but ideally 10 years or more) for
shareholders who can accommodate short-term price volatility, or as a
diversifier to a portfolio consisting primarily of larger stocks. It is
not an appropriate investment for short-
<PAGE>
term investors or those trying to time the market. (See "Frequent
Trading of Fund Shares" on page 20.)
The Aggressive Growth and the Social Responsibility Portfolios
may 1) borrow money from banks up to 50% of the net assets of the
respective portfolios, and 2) purchase and sell futures and options on
stock, index, interest rate and currency instruments, among others (see
page 6 for more details). Using borrowed funds for investment
purposes is called "leveraging" and increases the risk of loss or gain
in the value of the Fund's assets and the net asset value of its shares.
The Ultra-Large 35 Index Portfolio may likewise borrow from banks, but
only for the purpose of making short-sales "against the box" (short-
sales of securities owned). This would happen only in the event a
redemption would otherwise cause a distribution of capital gains. The
Aggressive Growth Portfolio's higher turnover (more frequent trading)
will expose it to increased cost and risk.
The Aggressive Growth Portfolio may also purchase warrants, invest up to
5% of its assets in the securities of new issues or "unseasoned issues"
which have been in operation less than three years, engage in short-term
trading, invest up to 10% of its assets in foreign securities and
American Depository Receipts (ADR's) listed on American exchanges,
invest any amount less than 25% of its portfolio in a single security,
invest up to 5% of portfolio assets in a closed-end investment company,
lend portfolio securities and engage in short sale transactions either
against the box or by shorting securities of other issuers. The Social
Responsibility Portfolio may purchase the same type of securities and
utilize the same investment techniques, except that it will only enter
into short sale transactions against the box, will not invest in closed-
end investment companies, and will not lend portfolio securities.
Please see "Summary of Investment Techniques Used" on page 12 for more
details on the Ultra-Small Company, Ultra-Small Index, and Micro-Cap
Limited Portfolios. These investment techniques may subject an investor
to greater than average risks and costs.
Foreign securities may be affected by the strength of foreign currencies
relative to the U.S. dollar, or by political or economic developments in
foreign countries. Consequently, they may be more volatile than U.S.
securities. Short sale transactions, while limited to 20% of total
assets and fully collateralized by cash in segregated accounts, also
represent potentially higher risk for Aggressive Growth shareholders,
since the maximum gain is 100% of the initial collateralized amount, but
there is no theoretical maximum loss. The Aggressive Growth portfolio
will maintain cash reserves ("100% coverage") equal to the market value
of any short positions for which it does not already own shares. These
cash reserves may be invested in money market or short term Treasury
securities held by the Fund's custodian or broker or both. Shareholders
of the Aggressive Growth, Ultra-Small Index, Micro-Cap Limited, and
Ultra-Large 35 Index Portfolio could also bear higher risk through the
lending of securities. If the borrowing broker failed to perform, the
Portfolio might experience delays in recovering its assets
(even though fully collateralized); the Portfolio would bear the risk of
loss from any interim change in securities price. Collateral for
securities lent will be invested in money market or short-term Treasury
securities.
Although Bridgeway Capital Management, Inc. (hereinafter referred to by
name, as the "Manager" or the "Adviser"), believes that the investment
techniques it employs to manage risk in the Aggressive Growth and Social
Responsibility Portfolios will further the Portfolios' investment
objectives and reduce losses that might otherwise occur during a time of
general decline in stock prices, no assurance can be given that these
investment techniques will achieve this result. The hedging techniques
used here would reduce losses during a time of general stock market
decline, if the Fund had previously sold futures or bought puts on stock
indices or entered into short
<PAGE>
positions in individual securities offsetting some portion of the market risk.
Thus, these Portfolios are appropriate investments only for investors who
understand the investment practices to be employed by the Adviser and are
able to accept the potential risks. The Adviser manages no other registered
investment company.
The Adviser intends to buy and sell futures, calls, and/or puts in the
Aggressive Growth and Social Responsibility Portfolios to increase or
decrease portfolio exposure to stock market, interest rate, and currency
market risk as indicated by statistical models of risk. (The Fund will
not sell "uncovered" calls.) The Adviser will use these instruments to
attempt to maintain a more constant level of risk as measured by certain
statistical indicators. In addition to the use of futures and options
as described above, the Aggressive Growth Portfolio may buy or sell
any financial or commodity futures, calls, or puts listed on the
major exchanges (CBOT, CME, COMEX, IMM, IOM, KCBT, MA,
NYSCE, NYCTE, NYFE, or NYME), for purposes of diversification of risk to
the extent that the aggregate initial margins and premiums required to
establish such nonhedging positions do not exceed 5% of its total net
assets. Examples of such financial or commodity instruments include the
Bond Buyer Municipal Index, British Pounds, crude oil, gold, and wheat
among others. Options and futures can be volatile investments and may
not perform as expected. Potential risks associated with options and
futures include 1) leverage risk (these instruments are designed to
produce substantial value change relative to the amount invested, thus
magnifying the risk of loss as well as potential gains), 2) dependence
on the Adviser's ability to correctly predict market movement, 3)
imperfect correlation between the price of options and futures contracts
and the underlying securities being hedged, 4) the possibility of
trading halts in options and futures, 5) the possible need to defer
closing out certain hedged positions to avoid adverse tax consequences,
and 6) increased complexity of futures and options, requiring a higher
level of training for the portfolio manager and support personnel.
The Adviser's goal in the Aggressive Growth and Social Responsibility
Portfolios is to manage these various risks through diversification and
hedging strategies to achieve a reasonable return at a total risk equal
to or less than that of the stock market (as measured by certain
statistical measures over periods of three years or more). (Hereinafter,
"stock market" will mean stock market as represented by the Standard &
Poor's Composite Stock 500 Index with dividends reinvested.) No
assurance can be given that these investment techniques will achieve the
objectives of higher return or equal risk.
A Portfolio's possible need to sell securities to cover redemptions
could, at times, force it to dispose of positions on a disadvantageous
basis. This is especially true for the Ultra-Small Index, Micro-Cap
Limited and Aggressive Growth Portfolios.
The Ultra-Large 35 Index Portfolio invests on a roughly equal dollar
weighting in the 35 large capitalization stocks which comprise the Bridgeway
Ultra-Large 35 Index. (See "Investment Objectives and Policies" on page 6
for a description of the Index.) While large companies tend to exhibit less
short-term price volatility than small stocks, historically they have not
recovered as fast from a market decline. Consequently, the Ultra-Large 35 Index
Portfolio may result in higher long term inflation risk (the risk that
the portfolio value will not keep up with inflation) than the ultra-
small portfolios.
INVESTMENT OBJECTIVES AND POLICIES
Bridgeway Fund, Inc. ("the Fund") is a no-load, diversified open-end
investment company or "mutual fund." The Fund is organized as a "series"
fund and has six investment portfolios, the Bridgeway Ultra-Small
Company Portfolio, the Bridgeway Ultra-Small Index
<PAGE>
Portfolio, the Bridgeway Micro-Cap Limited Portfolio, the Bridgeway
Aggressive Growth Portfolio, the Bridgeway Social Responsibility Portfolio
and the Bridgeway Ultra-Large 35 Index Portfolio.
The Ultra-Small Company and Ultra-Small Index Portfolios seek to provide
total return (primarily capital appreciation) by investing at least 80%
of total portfolio assets in very small companies. The Ultra-Small
Company Portfolio is actively managed, while the Ultra-Small Index
Portfolio invests passively in companies which comprise the CRSP Cap-
Based Portfolio 10 Index. (This index is more fully described in the
following paragraph.) For the purpose of measuring the 80% requirement,
"very small company" will mean companies with market capitalizations
less than the upper limit of the smallest 10% of the New York Stock
Exchange (NYSE). As of December 31, 1997 this upper limit is
represented by companies of less than $122 million market
capitalization, but will fluctuate with market prices. When investing
or reinvesting portfolio funds, the investment adviser will not purchase
the securities of companies larger than this limit unless at least 80%
of the portfolio funds invested after such purchase would be invested in
very small companies. The Ultra-Small Company and Ultra-Small Index
Portfolios may invest up to 5% of its assets in the securities of
"unseasoned issuers" which have been in operation less than three years.
The Ultra-Small Company Portfolio may also invest up to 10% of its
assets in foreign securities and ADR's listed on American exchanges.
The annual portfolio turnover rate should normally be less than 150% for
the Ultra-Small Company Portfolio and less than 30% for the Ultra-Small
Index Portfolio, but the Index Portfolio may be higher during the first
two years of operations as assets build significantly.
At a shareholder meeting on October 15, 1996 the Ultra-Small Company
Portfolio shareholders voted 1) to close the Ultra-Small Company
Portfolio to new investors any time net assets exceed $27.5 million, 2)
to allow these shareholders to invest an additional amount equal to
their previous net contributions for an extended period (now determined
to be through June 30, 1998), and 3) to allow employees, directors, and
participants in the pension plan of the Adviser or of the Fund to
purchase any unsubscribed shares in item 2 or shares redeemed in the
Portfolio. Restricting the number of shares outstanding will keep
Portfolio assets small and will help to ensure that the Portfolio may
remain actively invested in very small companies which the investment
adviser believes offer good investment opportunities. See "Security
Selection Process" for more details of the security selection process.
The Ultra-Small Index Portfolio seeks roughly to meet the total return
of the University of Chicago's Center for Research in Security Prices
(CRSP) Cap-Based Portfolio 10 Index by investing in a representative
sample of index companies. This Index is comprised of all common stocks
listed on the New York and American Stock Exchanges, and the Nasdaq
National Market (excluding unit investment trusts, closed-end funds, real estate
investment trusts, americus trusts, foreign stocks, and American
Depository Receipts) which are the size (market capitalization) of
stocks in the smallest 10% of the New York Stock Exchange. No other
index or passively managed mutual fund is based on an index of companies
this small. Similar to other index funds, the actual return of this
portfolio will likely underperform the Index by an amount equal to the
Portfolio expenses and transaction costs. The adviser seeks to minimize
this difference or "tracking error" by carefully managing costs,
reimbursing expenses over 0.75% annually if necessary, keeping portfolio
turnover to a minimum, strongly discouraging market timers and short
term traders from investing in the portfolio, and by the redemption fees
outlined under "Redemption Reimbursement Fees" on page 12. Because of
the higher expense ratio, higher transaction costs, and invest-
<PAGE>
ments in only a representative sample of index companies (the Adviser
expects to own 200 or more by the end of the first year, June 30, 1998), the
tracking error of this Portfolio will likely be significantly greater
than that of the Ultra-Large 35 Index Portfolio. Several percentage
points above or below the CRSP Index would not be unusual during a given
quarter. This component of "tracking error" should decline as the
number of stocks held by the Portfolio grows.
The Adviser will consider market capitalization, industry/sector
representation and certain economic factors (such as price to earnings
ratios) when choosing companies to add to the Portfolio. As a passively
managed Portfolio, the Adviser will generally consider selling a
security in four circumstances only. First, the Adviser will consider
selling the highest capitalization companies in the Ultra-Small Index
Portfolio when necessary to keep the average market capitalization of
the Portfolio equal to that of the CRSP Cap-Based Portfolio 10 Index.
Second, the Adviser may sell Portfolio securities to realize a capital
loss (offsetting a portion of portfolio gains) when this is possible at
a price equal to or higher than the midpoint between the quoted bid and
ask securities prices. Thus, the Adviser may engage in "tax management"
of this Portfolio, when it appears to be without detriment to
shareholders of non-taxable accounts. This practice will increase the
portfolio turnover. Third, the Adviser may sell a security which is
delisted or no longer meets the listing requirements of the New York
Stock Exchange, American Stock Exchange, or NASDAQ National Market.
Thus, the Adviser may sell a company which is no longer in the CRSP
Index, or which it expects to be deleted from the CRSP Index. Fourth,
the Adviser may sell securities to raise cash for redemptions. The
Adviser aggressively employs trading techniques to minimize or eliminate
the cost and disruption to the Portfolio of any selling activity,
although it may not be successful in this regard in all market
environments. The Adviser also strongly discourages shareholders from
market timing and panic selling in a declining market, thus minimizing
the need to sell portfolio securities to meet redemptions.
The Micro-Cap Limited Portfolio seeks to provide total return (primarily
capital appreciation) by investing at least 80% of total portfolio
assets in micro-cap companies. For this purpose, "micro-cap companies"
means companies with market capitalization the size of the second
smallest 10% of those listed on the New York Stock Exchange. As of
December 31, 1997, these were companies (including also those on the
American Exchange and NASDAQ) with market capitalization between $122
and $253 million. When investing or reinvesting portfolio funds, the
investment adviser will not purchase the securities of companies larger
than this upper limit ($253 million as of recently) unless at least 80%
of the portfolio funds invested after such purchase would be invested in
micro-cap companies. The Portfolio will not generally invest in ultra-
small companies (those the size of the smallest 10% of the New York
Stock Exchange), as Bridgeway Ultra-Small Company Portfolio will have
the right of first refusal to buy these companies.
The Micro-Cap Portfolio may invest up to 5% of its assets in the
securities of "unseasoned issuers" which have been in operation less
than three years. The Portfolio may also invest up to 10% of its assets
in foreign securities and ADR's listed on American exchanges. The
annual portfolio turnover rate should normally be less than 150%. The
Aggressive Growth Portfolio seeks to exceed the stock market total
return (primarily capital appreciation but also income) at a level of
total risk roughly equal to that of the stock market over longer periods
of time (three years or more). While the portfolio may hold some higher
dividend paying stocks, it is expected that the Portfolio will normally
have a dividend yield of less than the stock market as a whole. Thus,
investors seeking income as a major
<PAGE>
portion of total return should not invest in this portfolio. There can, of
course, be no assurance that the objective of total return or level of risk
will be realized. This Portfolio may use bank debt primarily for leverage.
Therefore, full consideration should be given to the risks inherent in the
investment techniques that the Adviser may use as outlined in "Risk Factors."
Normally, the Portfolio will invest in common stocks at a level equal to
at least 100% of its net assets. Portfolio exposure to market risk will
vary over time. Using hedging strategies, the Portfolio exposure to
market risk may be negatively correlated to the market, or may be as
high as 150% of the market as measured by the estimated portfolio beta.
"Negative correlation to the market" means that if the market goes up,
the value of the portfolio goes down. A portfolio beta of 150% means
that a 1% increase (decrease) in the stock market should result in a
1.5% increase (decrease) in the portfolio. These hedging strategies are
intended to maintain a more constant level of total risk. For example,
if the investment adviser feels the portfolio is exposed to an unusually
high probability of general stock market decline, it might sell stock
index futures to offset this risk.
The portfolio turnover rate (buying and selling frequency) will likely be
higher than 100% but no more than 500%, which is higher than most
aggressive growth funds. A 500% portfolio turnover is equivalent to
the sale and repurchase of all of the securities in the portfolio five times
during the year. Consequently, the Portfolio may incur higher than average
trading costs and may incur higher shareholder taxes for non-tax deferred
accounts.
In summary, this Portfolio seeks to exceed the stock market total return
at a level of total risk roughly equal to the stock market over longer
periods of time. Due to the possibility of a decline in total value,
this Portfolio is not an appropriate investment for short term investors
or those who cannot assume the inherent risks. See "Security Selection
Process" for more details of the security selection process. No form of
fundamental or technical analysis, including that employed by the
Adviser, has been proven conclusively to provide a risk adjusted excess
rate of return on a consistent basis.
The Social Responsibility Portfolio seeks to exceed the stock market
total return (primarily capital appreciation but also income) at a level
of total risk roughly equal to or less than that of the stock market
over longer periods of time (three years or more) by investing in
companies with social criteria generally in line with those of its
shareholders as determined by survey. Each shareholder is entitled and
encouraged to participate in this survey by submitting a survey form when
opening a new account or anytime thereafter by requesting a new form from the
Fund. The Adviser presently ranks about 650 companies according to the
following criteria measured by the Council of Economic Priorities
("CEP"): the company's environmental record, charitable giving record,
advancement of minorities in the workforce, community outreach, family
benefits, workplace issues, animal testing and disclosure of
information. With the exception of military contracts and animal
testing, "more" is understood to mean "better." The CEP is a New York
City based not-for-profit public interest research organization that has
conducted research in the field of corporate social responsibility for
more than two decades.
After determining shareholder weights (proportional to the number of
Portfolio shares owned) of each of these criteria, the Adviser ranks
each of these companies. Thus, the rankings should proportionally
reflect the weightings of each surveyed shareholder, and could
consequently change over time. The Fund invests at least 65% of its
total assets in the companies in the top fifth of the ranking and at
least 95% of its common stock investments in the companies contained in
the top half of the ranking. The Adviser monitors CEP company ratings
quarterly, or as they become
<PAGE>
available. The social criteria may change in the future as a result of the
majority vote of the Fund's Board of Directors, or as more or different
information is made available to the Adviser. The Adviser currently supplements
CEP research with its own research on other companies using the same 10 social
criteria. The Adviser excludes or sells companies from the portfolio which
a majority of surveyed shareholders choose to exclude. As of the date of this
prospectus, the Adviser excludes companies in the tobacco and defense
industries. This Portfolio may use bank debt for leverage and index
futures and stock and index options to hedge market risk. Using hedging
strategies, the Portfolio's exposure to market risk may be as low as 50%
of the market, or as high as 150% of the market as measured by the
estimated portfolio beta. A portfolio beta of 150% means that a 1%
increase (decrease) in the stock market should result in a 1.5% increase
(decrease) in the portfolio. While somewhat higher in the first two
years of operations, the turnover rate of this portfolio should be 50%
or less on an annual basis in the future.
In summary, this Portfolio seeks to exceed the stock market total
return, at a level of total risk roughly equal to or less than the stock
market over longer periods of time, by investing in companies with
social criteria generally in line with those of its shareholders. There
can be no assurance that any of the Portfolio's objectives will be
realized. No form of fundamental or technical analysis, including that
employed by the Adviser, has been proven conclusively to provide a risk
adjusted excess rate of return on a consistent basis. Therefore, full
consideration should be given to the risks inherent in the investment
techniques that the Adviser may use as outlined in "Risk Factors." See
"Security Selection Process" for more details of the security selection
process.
The Ultra-Large 35 Index Portfolio (hereinafter the "Portfolio") seeks
to meet the total return of the Bridgeway Ultra-Large 35 Index while
minimizing the distribution of capital gains and minimizing costs. This
proprietary index (hereinafter the "Index") is comprised of the 35
largest U.S. domestic equities as of June 27, 1997, after excluding a
tobacco company and ensuring reasonable industry diversification. (See
the list of companies in the following paragraph.) Consequently, this
diversified Portfolio will invest in securities of companies larger (on
average) than any other index mutual fund available as of this prospectus
date. Future changes in the Index will be made with a view toward
distributing no capital gains (first priority) and maintaining very
large company size (second priority.) Low turnover is essential to
minimize the tax burden associated with capital gains in taxable accounts.
While composition of the Index is the absolute, sole responsibility of Bridgeway
Capital Management, Inc., any potential changes would be preceded by an
informal (but not necessarily statistically significant) survey of Portfolio
shareholders. A company will be completely removed from the Index if
both (a) it is no longer one of the largest 35 U.S. companies (as
described above) and (b) if it would not create a capital gain. If a
company is no longer one of the 35 largest U.S. companies, but has
appreciated in price, it will remain as a "dormant company" in both the
Index and the Portfolio. New Portfolio inflows will not be invested in
a dormant company; a dormant company's representation in the Index will
decline over time. New net Portfolio inflows are invested in such a way
as to maintain a roughly equal dollar weighting of the 35 "active" (not
"dormant") companies in the Index. Composition of this Index is thus
maintained with taxable shareholders in mind.
The following 35 companies comprise the Bridgeway Ultra-Large 35 Index
as of July 1997. General Electric, Coca Cola, Microsoft, Exxon, Merck,
Intel, Proctor & Gamble, International Business Machines, Johnson &
Johnson, Bristol Myers Squibb, Pfizer, Wal Mart Stores, American
International Group, DuPont E.I. DeNemours, AT&T, Pepsico,
<PAGE>
Citicorp, Hewlett Packard, SBC Communications, Mobil, Walt Disney, Gillette,
Chevron, Nationsbank, Bankamerica, Fannie Mae, Ford, Motorola, Cisco,
GTE, Oracle, General Motors, McDonalds, Bell Atlantic and Worldcom.
Similar to other index funds, the actual return of this portfolio will
likely underperform the Bridgeway Ultra-Large 35 Index by an amount
equal to the Portfolio expenses and transaction costs. The adviser
seeks to minimize this difference or "tracking error" by carefully
managing costs, reimbursing expenses over 0.15% annually if necessary,
keeping Portfolio turnover and transaction expenses to a minimum,
strongly discouraging market timers and short term traders from
investing in the Portfolio, and by the redemption fee outlined under
"Redemption Reimbursement Fees" (page 12). As a result of index
recomposition and some redemptions, the turnover for this Portfolio
should be less than 5% annually.
SECURITY SELECTION PROCESS.
In determining which securities to purchase for the actively managed
portfolios, the Adviser reviews potential companies that meet its market
capitalization, earnings history, liquidity and other fundamental and
technical criteria and then analyzes this grouping from an industry
perspective. Because different industries have varying risk and growth
characteristics depending on prevailing economic and market conditions,
valuation considerations vary. The Adviser invests in no tobacco
companies. It is expected that all or substantially all (more than
95%), of the equity securities held by the Fund will trade on the New
York and American Stock Exchanges, and NASDAQ.
The equity securities in which the Fund will invest consist of common
stocks, although the Fund reserves the right to purchase securities
having characteristics of common stocks, such as convertible preferred
stocks, convertible debt securities or warrants, if such securities are
deemed to be significantly undervalued and their purchase is appropriate
in furtherance of each Portfolio's objective as determined by the
Adviser. The rating of any convertible preferred stocks, convertible
debt, or other debt securities held by the Fund will be in the highest
three levels of "investment-grade," that is, rated A or better by either
Moody's Investors Service, Inc. or Standard & Poor's Corporation, or, if
unrated, judged to be of equivalent quality as determined by the
Adviser. The Fund may also invest in the following debt securities: 1)
those which are direct obligations of the U.S. Treasury (e.g. Treasury
bonds or bills), 2) those supported by the full faith and credit of the United
States (e.g. "GNMA" certificates) and 3) those supported by the right of
the issuer to borrow from the U.S. Treasury (e.g. "FNMA" securities).
It is expected that short-term money market securities would normally
represent less than 10% of the Fund's total assets. However, in the
event future economic or financial conditions adversely affect equity
securities of the type described above, the Fund may take a temporary,
defensive investment position and invest all or part of its assets in
such short-term money market securities. These short-term instruments
include securities issued or guaranteed by the U.S. Government and
agencies thereof.
DISCLAIMER--CENTER FOR RESEARCH IN
SECURITY PRICES
Bridgeway Ultra-Small Index Portfolio is not sponsored, sold, promoted,
or endorsed by University of Chicago's Center for Research in Securities
Prices (CRSP) the organization which created and maintains the CRSP Cap-
Based Portfolio 10 Index. CRSP makes no representation or warranty,
express or implied, about the advisability of investing in securities
generally, or in any Bridgeway Fund portfolio specifically. CRSP has no
obligation or liability with respect to the Fund portfolio or its
shareholders.
REDEMPTION REIMBURSEMENT FEE
In order to minimize transaction costs and the negative tax consequences
(for taxable accounts) of high turnover, the Board of Directors may
impose a 2% redemption reimbursement fee for index portfolio
shareholders who redeem in a down market. Specifically, this fee may be
imposed any time the S&P 500 Index (without dividends) has declined more
than 5% over the previous 5 trading days.
The adviser believes this redemption reimbursement fee will discourage
potential shareholders who would engage in panic selling which increases
transaction costs and capital gains distributions.
PRINCIPAL INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which are
fundamental policies that cannot be changed without the approval of a
majority of the Fund's outstanding voting securities (as defined in the
Investment Company Act of 1940, referred to as the "1940 Act").
Each Portfolio's investment objective is such a fundamental policy. In
addition, as a matter of Fundamental policy, (1)at least 75% of each
portfolio's total assets are limited in respect of any one issuer to an
amount not greater in value than 5% of the value of the total assets of
the portfolio and to not more than 10% of the outstanding voting
securities of such issuer and (2) no portfolio may borrow money except
from banks for temporary or emergency purposes in amounts not exceeding
10% of the Fund's net assets. However, the Aggressive Growth and Social
Responsibility Portfolios may borrow money for investment purposes up to
50% of net assets prior to such borrowing as described earlier.
Additional information about the Fund's fundamental policies and other
investment restrictions is contained in the Statement of Additional
Information.
<TABLE>
<CAPTION>
SUMMARY OF INVESTMENT TECHNIQUES USED:
ULTRA- ULTRA- MICRO- AGGRESSIVE SOCIAL ULTRA-
SMALL SMALL CAP GROWTH RESPON- LARGE
COMPANY INDEX LIMITED SIBILITY 35INDEX
<S> <C> <C> <C> <C> <C> <C>
Borrowing (leveraging) No No No Yes Yes **
Hedging No No No Yes Yes No
Options (stock index) No No No Yes Yes No
Futures (stock index) * * * Yes Yes No
Options (other) No No No Yes No No
Futures (other) No No No Yes No No
Short-sales No No No Yes No No
Warrants No No No Yes Yes No
Foreign companies/
ADR's Yes No Yes Yes Yes No
Closed-end
investment companies No No No Yes No No
Lending securities No Yes Yes Yes No Yes
New issues/Unseasoned
companies Yes Yes Yes Yes No No
High turnover Yes No Yes Yes No No
Short-term trading Yes No Yes Yes No No
</TABLE>
* THE ULTRA-SMALL COMPANY, ULTRA-SMALL INDEX, AND MICRO-CAP LIMITED
PORTFOLIOS MAY ONLY TAKE TEMPORARY, LONG, STOCK INDEX FUTURES POSITIONS
TO OFFSET THE EFFECT OF CASH HELD FOR FUTURE INVESTING OR FOR POTENTIAL
REDEMPTIONS. NO MORE THAN 35% OF PORTFOLIO NET ASSETS WILL BE AT RISK IN
THIS LIMITED USE OF STOCK INDEX FUTURES.
** THE ULTRA-LARGE 35 PORTFOLIO INDEX WILL ONLY BORROW ON A TEMPORARY
BASIS FOR THE PURPOSE OF SELLING SHORT "AGAINST THE BOX".
In addition, the Fund's operating policies preclude it from making
certain investments if thereafter more than 10% of the value of its net
assets would be so invested. The investments included in this 10% are
(1) those which are restricted, i.e. those which cannot freely be sold
for legal reasons (which the Fund does not expect to own); and (2)
investments for which market quotations are not readily available (which
the Fund does not expect to own).
MANAGEMENT OF THE FUND
The Fund's Board of Directors decides on matters of general policy and
reviews the activities of the Fund's Adviser, and the Fund's officers
conduct and supervise its daily business operations. Bridgeway Capital
Management, Inc. (the "Adviser"), 5650 Kirby Drive, Suite 141, Houston,
Texas 77005-2443, acts as the investment adviser to the Fund, subject to
the control of the Fund's Board of Directors. The Adviser is a Texas
corporation that was organized in 1993 to act as the Fund's investment
adviser. The Adviser is controlled by its President John N. R.
Montgomery and his family. From 1985 to 1992 Mr. Montgomery gained
extensive experience managing his own investment portfolio utilizing the
techniques that he uses in managing the Portfolios of the Fund. Mr.
Montgomery is solely responsible for managing the assets of the Funds
and selecting the securities that each Portfolio will purchase and sell,
although he will be assisted by other employees who will provide him
with research assistance. He has earned graduate degrees from both the
Massachusetts Institute of Technology and Harvard Graduate School of
Business Administration. Mr. Montgomery has been a research
engineer/project manager at the Massachusetts Institute of Technology,
has served as an executive with transportation agencies in North
Carolina and Texas, and founded Bridgeway Capital Management, Inc. in
July, 1993.
The Adviser is responsible for the investment and reinvestment of the
Fund's assets, provides the Fund with executive and other personnel,
office space and other facilities and administrative services, and
supervises the Fund's daily business affairs. It formulates and
implements a continuous investment program for the Fund, consistent with
the investment objectives, policies and restrictions of each of its
Portfolios. Under the Management Contract with the Adviser, the Ultra-
Small Company and Micro-Cap Limited Portfolios pay the Adviser a flat
0.9% annual management fee, the Ultra-Small Index Portfolio pays a flat 0.5%
annual fee, and the Ultra-Large 35 Index Portfolio pays a 0.08% annual fee,
computed daily and payable monthly. However, the fee for the Ultra-Small
Company and Micro-Cap Limited Portfolios during the period that the net
assets range from $27.5 to $55 million will be paid as if the Portfolios had $55
million under management (that is $55 million times .009 equals
$495,000), subject to a maximum 1.49% annual rate. In addition, the
total expense ratio of each of these two Portfolios is subject to a 1.9%
maximum cap. The Ultra-Small Company and Micro-Cap Limited Portfolio
fees are higher than the fee paid by most investment companies to their
Adviser, but lower than the average of new "micro-cap" funds. The board
of directors has determined that this fee structure is appropriate for
these "very small-cap" and "micro-cap" funds and their "ultra-small" and
"micro-cap" charters.
The Aggressive Growth, Social Responsibility, and Micro-Cap Limited
Portfolios of the Fund pay the Adviser a base annual management fee,
computed daily and payable monthly of 0.90% of the Fund's average daily
net assets (also higher than that paid by most investment companies).
The Aggressive Growth and Social Responsibility Portfolio base fees will
be adjusted upwards or downwards by 4.67% of the difference between the
investment performance of each Portfolio and the investment performance
of the Standard & Poor's Composite 500 Stock Index (hereinafter, the
<PAGE>
"Index") over a five year rolling period of time. The Micro-Cap
Limited Portfolio base fee will be adjusted upward or downward by 2.80%
of the difference between the investment performance of the Portfolio
and the investment performance of the CRSP Cap-Based Portfolio 9 Index
of similar size companies. No performance fee adjustment will be made
when the performance difference is less than or equal to 2%. The
performance adjustment rate will range from -.7% to +.7%. Thus,
depending on portfolio performance, the Aggressive Growth, Social
Responsibility, and Micro-Cap Limited Portfolios could pay a total
annual advisory fee as low as 0.2% (among the lowest in the industry) or
as high as 1.6% (among the highest in the industry). In accordance with
the graph and table on page 15, a Portfolio could pay a higher fee when
both the Portfolio's performance and the corresponding index performance
are negative (e.g. if the Fund performance were -10%, but the
corresponding index performance were -13%); also the Fund could pay a
lower fee when both performances were positive (e.g. if the Fund
performance was +10% but the corresponding index performance was +13%).
Since the Fund does not have a five year operating history, the
performance rate adjustment will be calculated as follows during
remainder of the initial five year period of operations through
September 30, 1999.
From June 30, 1994 through Sept. 30, 1999, the performance rate
adjustment fee will be calculated based upon a comparison of the
investment performance of each Portfolio and the Index over the number
of quarters that have elapsed since the Fund began operations. (The
performance rate adjustment fee will not apply to the Micro-Cap Limited
Portfolio until July 1, 1999.) Each time the performance adjustment fee
is calculated, it will cover a longer time span, until it can cover a
running five year period as intended. In the meantime, the early months
of the transition period will have a disproportionate effect on the
performance adjustment of the fee. From July 1, 1996 to June 30, 1997,
the Ultra-Small Company, Aggressive Growth, and Social Responsibility
Portfolios waived management fees of $29,727, $18,126 and $11,407
respectively to the Adviser.
In addition to the fees payable to the Adviser, the Fund is responsible
for its operating expenses, which include such items as interest, taxes,
legal and audit expenses, and custodian and shareholder servicing agent
fees. See Statement of Additional Information for more information as
to the Fund's Board of Directors, Officers, the Adviser and the Fund's
operating expenses.
In placing orders for the Fund's portfolio transactions, the Adviser's
policy is to seek "best execution", i.e. prompt and efficient execution
at the most favorable price. In seeking to achieve this combination,
the Adviser evaluates factors such as the overall quality and
reliability of dealers and services they provide, including general
execution capability, reliability, operational capacity and financial
condition.
CODE OF ETHICS
Both the Fund and the Adviser subscribe to a mission statement which
places integrity above every other business goal. The Fund portfolio
manager is encouraged to invest in shares of the Fund and is not allowed
to invest in shares of equity securities which the Fund might also
potentially own. Other employees, officers, and directors of the Fund
and the Adviser are also encouraged to own shares of the Fund and may
only trade shares of equity securities within very stringent guidelines
contained in the Code of Ethics. Neither the Fund nor the Adviser takes
part in directed brokerage arrangements, pays soft dollar commissions or
has a brokerage relationship with any affiliated organization. Copies
of the mission statement and Code of Ethics may be obtained from the
Fund. Any shareholder or potential shareholder who feels a policy,
<PAGE>
AGGRESSIVE GROWTH & SOCIAL RESPONSIBILITY PORTFOLIO
SAMPLE TOTAL MANAGEMENT FEES
(BASED ON RELATIVE FUND PERFORMANCE)
FUND PERFORMANCE TOTAL MANAGEMENT
RELATIVE TO S&P 500 FEE
21.0% 1.60%
18.0% 1.60%
15.0% 1.60%
12.0% 1.46%
9.0% 1.32%
6.0% 1.18%
3.0% 1.04%
2.0% .90%
0.0% .90%
-2.0% .90%
-3.0% .76%
-6.0% .62%
-9.0% .48%
-12.0% .34%
-15.0% .20%
-18.0% .20%
-21.0% .20%
MICRO-CAP LIMITED PORTFOLIO
SAMPLE TOTAL MANAGEMENT FEES*
(BASED ON RELATIVE FUND PERFORMANCE)
FUND PERFORMANCE TOTAL MANAGEMENT
RELATIVE TO CRSP INDEX FEE
35.00% 1.60%
30.00% 1.60%
25.00% 1.60%
20.00% 1.46%
15.00% 1.32%
10.00% 1.18%
5.00% 1.04%
2.00% 0.90%
0.00% 0.90%
-2.00% 0.90%
-5.00% 0.76%
- -10.00% 0.62%
- -15.00% 0.48%
- -20.00% 0.34%
- -25.00% 0.20%
- -30.00% 0.20%
- -35.00% 0.20%
<PAGE>
action, or investment of the Fund or Adviser does or may compromise the
highest standards of integrity is encouraged to call the Fund President
directly at 800-661-3550.
DISTRIBUTION OF FUND SHARES
Except for the Ultra-Small Company Portfolio, shares of the other Fund
portfolios are offered at their net asset value without a sales charge
as an investment vehicle for individuals, institutions, fiduciaries and
retirement plans. The Fund reserves the right to reject any order. The
Adviser may make payments out of its capital or profits of up to 0.25%
of the average daily net assets attributable to broker/dealers or
registered representatives including retirement plan consultants and
fund marketplaces, that provide assistance in the Fund's efforts to
distribute its shares. Such payments and any other costs of
distribution are made by the Advisor out of its own resources. Any fee
paid to fund marketplaces for transfer agency costs (not distribution)
will be paid by the Fund itself. In accordance with Board policy, such
transfer agency cost will not exceed a rate equal to the lesser of
Bridgeway Fund's internal rate, or a rate representative of the mutual
fund industry average. Any such distribution arrangement must be
approved by a majority of independent Fund directors. On October 15,
1996 shareholders approved a 12b-1 plan whereby the Fund acts as its own
distributor of its shares and the Adviser pays all distribution expenses
of the Fund.
HOW TO PURCHASE SHARES
Shareholders who desire to purchase shares of Bridgeway Micro-Cap
Limited Portfolio should take special note of the (potentially very
limited) subscription period in the next section.
New shareholders of the Fund may purchase shares on a "no-transaction
fee basis" through E*Trade (1-800-786-2575). These purchases must be
made by computer over the "Internet." For a $15 per transaction charge,
they may also be made by telephone with E*Trade. These fees are subject
to change without notification by Bridgeway.
New shareholders may also purchase shares on a fee for transaction basis
through any fund marketplace that can demonstrate a reasonably constant
flow of investments. Typical transaction fees range from $18 to $35,
but do vary and may change. Currently four fund marketplaces have
qualified under this plan: Ameritrade (1-800-669-3900), Jack White (1-
800-233-3411), Fidelity (1-800-544-3902), and Waterhouse (1-800-934-
4443).
The minimum initial investment in any Fund Portfolio is $2,000. A
potential shareholder may also open an account after committing to an
automatic investment plan for a minimum 12 month period at a level of at
least $200 per month. This "automatic investment plan" or "dollar cost
averaging plan" is currently available for a one time fee of $18 through
Ameritrade (1-800-669-3900). The minimum subsequent investment is
determined by the fund marketplace. The Fund reserves the right to
reject any order.
SUBSCRIPTION PERIOD FOR BRIDGEWAY MICRO-CAP LIMITED PORTFOLIO
Bridgeway Micro-Cap Limited Portfolio will close to new investors when
net assets reach $27.5 million and will only reopen if net assets
decline below this level. The Portfolio will close to all investments
whenever net assets exceed $55 million.
Because of the recent performance of Bridgeway Ultra-Small Company
Portfolio, and because this Portfolio is now closed, the Adviser
anticipates that there may be significant demand for the Micro-Cap
Limited Portfolio. To ensure order in the subscription process,
Bridgeway has designed a five-tiered approach to Portfolio purchases:
<PAGE>
1. Beginning June 22, 1998, $8 million of Micro-Cap Limited
Portfolio shares (1,600,000 shares) will be reserved for distribution between
customers of E*Trade and another fund marketplace to be determined; these
organizations have agreed to waive or reduce certain fees. Likewise, $4
million of Portfolio shares will be reserved for charitable and non-profit
organizations. If unsubscribed by June 26, and if net assets are not
above $27.5 million, these shares will become available to potential
shareholders as described below. If net assets are above $27.5 million
but below $55 million on June 26, any remaining unsubscribed allocation
of these shares will become available to the then current Portfolio
shareholders. If net assets are above $55 million on June 26, any
remaining shares will not be distributed.
2. From June 22 through June 25, Fund shareholders on record June
3, 1998 (in any other Bridgeway Fund Portfolio) may invest in the other
shares (potentially $43 million worth) of the Micro-Cap Limited
Portfolio. To facilitate the timely receipt of their investments, Fund
shareholders may
- Call the Fund to verify the Portfolio's availability.
- Receive a confirmation number to be included in the mail
with the investment. Representatives will include the
investment in calculating the closing of the Portfolio.
- Have the investment postmarked the day the confirmation
number is issued. As with any investment, the Fund
reserves the right to reject any order.
3. If net assets are still below $27.5 million from June 26 through
June 30, the Portfolio is open to new shareholders through the brokers
listed in the previous section.
4. On July 1, subscription funds will be invested in micro-cap
stocks, and the Portfolio net asset value per share will begin to
fluctuate. If net assets remain below $27.5 million, the Portfolio will
remain open to new investors. The Portfolio will remain closed to new
investors whenever net assets are above $27.5 million and will close to
all new investments when net assets are above $55 million.
5. Employees, directors, and participants in the pension plan of
the Adviser or of the Fund may purchase any redeemed shares of the
Portfolio (only) after the Portfolio is closed.
6. At any point that the portfolio is open to a potential or
current shareholder, that shareholder may sign up for an automatic
investment plan and be assured of making investments through June, 1999.
The adviser will consider the sum of these investments when determining
the effective net assets for purposes of closing the Portfolio. After
the Portfolio closes, the investment amount may not be increased.
In summary, Bridgeway is giving preference to current shareholders in
recognition of our continuing responsibility to recognize their
interests first. We are also giving limited preference to E*Trade
customers and to charitable and non-profit organizations in recognition
of Bridgeway's mission statement. Finally, we are giving preference to
current and future Bridgeway employees and directors to maximize their
financial and non-financial interest in the Fund.
TAX SHELTERED RETIREMENT PLANS
Shares of the Fund may be purchased for various types of retirement plans,
including Individual Retirement Plans (IRA's). For more complete information,
contact the marketplaces listed in the preceding section.
SUBSEQUENT PURCHASES BY BRIDGEWAY SHAREHOLDERS WHO
WERE OF RECORD PRIOR TO JUNE 5, 1998
Shareholders who bought shares of the actively managed portfolios
directly from the Fund before the date of this Prospectus, may continue
to make direct
<PAGE>
investments in any actively managed Fund Portfolio subject
to a minimum purchase of $2,000 per portfolio and closing
restrictions as outlined elsewhere in this Prospectus. The minimum
subsequent investment is $500. Automatic investment shareholders of
the Ultra-Small Company Portfolio may shift their automatic purchases to
the Micro-Cap Limited Portfolio during or before the shareholder
subscription period. The minimum monthly automatic investment is $200
or 1/12th of the annual investment for a retirement plan.
NET ASSET VALUE
The Fund's net asset value per share is determined on each day that the
New York Stock Exchange is open for trading, as of the close of the
Exchange (currently 4:00 p.m. Eastern time). Purchase orders received
or shares tendered for redemption on a day the Exchange is open for
trading prior to the close of trading on that day will be valued at the
close of trading on that day. Application for purchase of shares and
requests for redemptions of shares received after the close of trading
on the Exchange will be based on the net asset value as determined as of
the close of trading on the next day that the Exchange is open. See
"Redemption Reimbursement Fee" (page 12) for important information on
purchase and redemption fees for Ultra-Small Index and Ultra-Large 35
Index Portfolios.
The net asset value per share of each Portfolio is the value of the
Portfolio's assets, less its liabilities, divided by the number of
shares of the Portfolio outstanding. The value of the Fund's securities
is determined on the basis of the market value of such securities. Short-
term investments maturing in less than 60 days are valued at amortized
cost unless the Board of Directors determines that it does not represent
a fair value. See the Statement of Additional Information for further
information.
HOW TO REDEEM SHARES
Shareholders of fund marketplaces should contact those marketplaces for
redemption instructions. Bridgeway direct shareholders wishing to redeem
shares by telephone may do so if appropriate information is supplied on
the Account Registration Form. You can redeem shares by calling the
Fund at 800-661-3550 (or in Houston 713-661-3265) prior to the close of
the New York Stock Exchange (currently 4:00 p.m. E.S.T.) to receive that
day's price. The proceeds may be sent by check to the address of
record only or by wire transfer to your bank account of record only on
the next business day following your telephone request. Wire transfers
will incur a cost of $15 subtracted from the proceeds.
Bridgeway direct shareholders wishing to redeem shares may do so at any
time by writing or delivering written instructions in proper form to:
Bridgeway Fund, Inc., 5650 Kirby Drive, Suite 141, Houston, TX 77005-
2443. Redemption requests by fax will not be accepted. The signatures
on written instructions to redeem shares must be in the same name as the
account shares, and must have a medallion guarantee by a member of a
national securities exchange or a commercial bank. Most commercial
banks are now part of the medallion program, but not all. A medallion
signature guarantee is not the same as notarization, and an
acknowledgment by a notary public is not an acceptable substitute.
Additional documents may be required from corporations or other
organizations, fiduciaries or anyone other than the shareholder of
record. Any questions concerning documents should be directed to the
Fund at 800-661-3550 (or in Houston at 713-661-3265).
The redemption request must specify the number of shares or dollars to
be redeemed and be signed by all registered owners with signatures
medallion guaranteed. The request will not be accepted unless it
contains all required documents in proper form, as
<PAGE>
described above. If the request is in proper form, the shares specified
will be redeemed at the net asset value next determined after receipt of
the request.
FREQUENT TRADING OF FUND SHARES
The Fund discourages frequent redemptions or using the Fund as a short-
term trading vehicle; it is intended for long term investors.
Shareholders who make a practice of frequent buying and selling of Fund
shares may not be permitted to make additional investments in the Fund.
Two times annually is considered frequent and includes exchanges among
portfolios.
PAYMENTS
Payment for shares redeemed normally will be made within seven days of
redemption and will be sent only to shareholders at the record address.
However, payment may be delayed under unusual circumstances, as
specified in the 1940 Act or as determined by the Securities and
Exchange Commission. Payment may also be delayed for any shares
purchased by check for a reasonable time (not to exceed 15 days from the
purchase date) necessary to determine that the purchase check will be
honored. Payment for redemptions above $250,000 may be made by
securities in kind.
REDEMPTION OF VERY SMALL ACCOUNTS
In order to reduce the Fund's expenses, the Board of Directors is
authorized to cause the redemption of all of the shares of any
shareholder whose account has declined to a net asset value of less than
$1,000, as a result of a transfer or redemption, at the net asset value
determined as of the close of business on the business day preceding the
sending of proceeds of such redemption. The Fund will give shareholders
whose shares are being redeemed 60 days prior written notice in which
to purchase sufficient shares to avoid such redemption.
EXCHANGE PRIVILEGE
No shareholder may exchange shares of an open portfolio into a closed
portfolio. Fund marketplace shareholders should contact their
marketplaces directly. A previous direct Bridgeway shareholder may
redeem all or any portion of his or her Portfolio shares and use the
proceeds to purchase shares of any other Portfolio offered by the Fund.
Any such redemption of shares of another Portfolio will be effected at
the respective net asset values of such Portfolio. An exchange
transaction is a sale and purchase of shares for federal income tax
purposes and may result in a capital gain or loss. The registration of
both the account from which the exchange is being made and the account
to which the exchange is made must be identical.
Exchange requests may be made in writing or by telephone. Exchange
forms may be obtained by writing or calling the Fund at 800-661-3550
(or 713-661-3265 in Houston). Written requests should include the
account number of both Portfolios if an account is already opened, and
the amount of the exchange. If a new account is to be opened by the
exchange, the registration must be identical to that of the original
account. The Fund reserves the right, at any time and without prior
notice, to suspend, limit, modify or terminate the exchange privilege or
its use in any manner by any person or class. In particular, since an
excessive number of exchanges may be disadvantageous to the Fund, the
Fund reserves the right to terminate the exchange privilege of any
shareholder who makes two or more exchanges or redemptions of shares in
a year.
DIVIDENDS AND TAX STATUS
The Fund declares dividends from net investment income and distributions
from net capital gains annually and pays such dividends and
distributions, if any, after year end or as otherwise required for
<PAGE>
compliance with Subchapter M of the Internal Revenue Code. All
dividends and distributions in full and fractional shares of the Fund
will be reinvested based on the record date, unless the shareholder
notifies the Fund that dividends are to be paid in cash.
The Fund expects to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies, under which all taxable
income is expected to be distributed to shareholders. If so qualified,
the Fund will not be subject to federal income taxes on its net
investment income and capital gains, if any, realized during any fiscal
year which it distributes to its shareholders, provided that at least
90% of its net investment income earned in the fiscal year is
distributed. The Fund will be subject to a nondeductible 4% excise tax
to the extent it does not distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain
net income for the one-year period ending on October 31st of that year,
plus certain other amounts. All dividends from net investment income
together with distributions of net short-term capital gains
(collectively "income dividends") will be taxable as ordinary income to
shareholders even though paid in additional shares. Long-term capital
gains dividends will be taxable to shareholders as net long-term capital
gains, regardless of the length of time a shareholder has owned Fund
shares. Dividends and distributions are generally taxable to
shareholders in the year in which received. However, dividends and
distributions in January of any calendar year will be treated for tax
purposes as if received in the prior calendar year on the record date
for the dividend or distribution, if the record date was in October,
November or December. The Fund will notify each shareholder after the
close of the calendar year both of the dollar amount and the tax status
of that year's dividends and distributions.
Gains realized from the sale of securities will be long or short term,
depending on the length of time owned by the Fund. The Fund may
be required to impose backup withholding at a rate of 31% from income
dividends and capital gain distributions and upon payment of redemption
proceeds if a shareholder does not comply with federal requirements
relating to the furnishing and certification of taxpayer identification
numbers and reporting of dividends.
PERFORMANCE INFORMATION
From time to time the Fund may quote its average annual return
("standardized return") in advertisements or promotional materials.
Advertisement and promotional materials reflecting standardized return
("performance advertisement") will show percentage rates reflecting the
average annual change in the value of an assumed initial investment in
the Fund of $1,000 at the end of one, five and ten year periods. If
such periods have not yet elapsed, data will be given as of the end of a
shorter period corresponding to the duration of the Fund. Standardized
return assumes the reinvestment of all dividends and capital gain
distributions.
The Fund's standardized yield may be referred to in advertising and
promotional materials (all such materials are paid for by Bridgeway
Capital Management, Inc., the Fund's Adviser). The Fund's standardized
yield shows the rate of income that it earns on its investments,
expressed as a percentage of the net asset value of Fund shares. The
Fund calculates yield by determining the interest income it earned from
its portfolio investments for a specified thirty-day period (net of
expenses), dividing such income by the average number of Fund shares
outstanding, and expressing the result as an annualized percentage based
on the net asset value at the end of that thirty day period. Yield
accounting methods differ from the methods used for other accounting
purposes; accordingly, the Fund's standardized yield may not equal the
dividend income actually paid to investors or the income reported in the
Fund's financial statements. Any non-standard performance measures will
be accompanied by standard performance measures.
In addition to standardized return, performance
<PAGE>
advertisements also may include other total return performance data ("non-
standardized return"). Non standardized return may be quoted for the same
or different periods as those for which standardized return is quoted and may
consist of aggregate or average annual percentage rate of return, actual year by
year rates or any combination thereof. All data included in
performance advertisements will reflect past performance and will not
necessarily be indicative of future results. The investment return and
principal value of an investment in the Fund will fluctuate, and an
investor's proceeds upon redeeming Fund shares may be more or less than
the original cost of the shares. The Fund's annual and semi-annual report
contains a quarterly performance graph and discussion. Call 800-661-3550
for a free copy.
GENERAL INFORMATION
The Fund was incorporated in Maryland on October 19, 1993. Shareholders
are entitled to vote for each full share held (and fractional votes for
fractional shares) and may vote in the election of Directors and on
other matter submitted to meetings of shareholders. It is not
contemplated that regular annual meetings of shareholders be held. No
amendment may be made to the Articles of Incorporation without the
affirmative vote of the holders of more than 50% of the Fund's
outstanding shares. The holders of shares have no pre-emtive or
conversion rights. Shares when issued are fully paid and non-
assessable. Coopers & Lybrand L.L.P. serves as the independent auditors
of the Fund. Compass Bank acts as custodian of the Fund's assets. The
Fund acts as its own accounting and shareholder servicing agent and its
own distributor. Shareholder inquiries should be directed to the Fund
at the address and telephone number indicated on the cover page of this
prospectus.
<PAGE>
BRIDGEWAY FUND, INC.
Statement of Additional Information
Dated June 5, 1998
This Statement of Additional Information is not a prospectus, and it
should be read in conjunction with the prospectus of Bridgeway Fund,Inc.
(the "Fund"), dated June 5, 1998. A copy of the prospectus may be
obtained directly from the Fund, which acts as the distributor of its
own shares, at 5650 Kirby Drive, Suite 141, Houston, Texas 77005-2443,
telephone 800-661-3550 or in Houston 661-3265.
TABLE OF CONTENTS
Cross-
reference
to page in
Page the
Prospectus
Investment Objective and Policies 2 7
Risk Factors 2 4
Investment Restrictions 3 12
U.S. Government Securities 5 11
Foreign Securities 5 5
New Issues and Closed End Funds 5 7
Management 6 13
The Management Agreement 7 -
Portfolio Transactions and Brokerage 11 16
Net Asset Value 12 19
Redemption in Kind 12 20
Taxation 12 21
Performance Information 13 22
General Information 14 22
Financial Statements 16 -
INVESTMENT OBJECTIVE AND POLICIES
The Fund was organized as a series fund with three initial portfolios or
series: Bridgeway Ultra-Small Company Portfolio, Bridgeway Aggressive
Growth Portfolio, and Bridgeway Social Responsibility Portfolio. The
Ultra-Small Index Portfolio and the Ultra-Large 35 Index Portfolio were
added on July 20, 1997, and the Micro-Cap Limited Portfolio was added on
June 5, 1998. All of these Portfolios have as their investment
objective to provide total return (capital appreciation and current
income), but the Ultra-Small Company, Ultra-Small Index, Micro-Cap Limited
and Aggressive Growth Portfolios focus primarily on capital appreciation.The
Portfolios' investment policies are described in the Fund's prospectus.
The Adviser uses hedging strategies to vary the Aggressive Growth and
Social Responsibility Portfolios' exposure to market risk. The Adviser
currently measures market risk by estimating future "betas" based on the
historical betas of individual stocks which make up the portfolio. Beta
is a measure of market risk contained within the body of financial
research called modern portfolio theory. A portfolio beta of 150% means
that a 1% increase (decrease) in the stock market should result in a
1.5% increase (decrease) in the portfolio.
The Adviser may use up to 5% of the Aggressive Growth Portfolio's
netassets to establish positions in commodities futures and
options, except that the aggregate initial margins and premiums required
to establish such positions in any one commodity may not exceed 2% of
net assets. Subject to these two limiting constraints and applicable
laws, this portfolio (only) may invest in commodity futures and options
for the purpose of diversification in line with the stated portfolio
objective.
The Ultra-Small Company, Ultra-Small Index, and Micro-Cap Limited
Portfolios may take temporary, long, stock index futures positions to
offset the effect of cash held for future investing or for potential
redemptions. For example, assume the fund were 96% invested in stocks
and 4% in cash, and it wanted to maintain 100% exposure to market risk,
but wanted to defer investment of this 4% to a future date. Then the
Portfolio could take a long position in stock index futures such that
the underlying value of securities represented by the futures did not
exceed either the amount of portfolio cash or 35% of Portfolio total
assets.
RISK FACTORS
A discussion of risk for each of the Fund portfolios appears on pages 4-
6 of the prospectus. Because the Ultra-Small Company, Micro-Cap Limited
and Ultra-Small Index Portfolios invest in stocks smaller than those
generally available through mutual funds, the following gives more
detailed insights into their risk and return characteristics. These
statistics are based on the historical record of these financial
instruments (asset classes) and are not the record of the Fund itself.
The return numbers include reinvested interest and dividends, but do not
include trading or operational costs, which a mutual fund would incur.
The source of these data (which is used here by permission) is the
Center for Research in Securities Prices (CRSP) Cap-Based Portfolios,
and Ibbotson Associates, Stocks, Bonds, Bills, and Inflation, 1998
Yearbook.
Short-term Risk
Table A below indicates that the short-term volatility of Ultra-Small
stocks as represented by CRSP Cap-Based 10 Portfolio is much higher than
that exhibited by large stocks, bonds, or Treasury Bills. To a somewhat
lesser extent, the same is true of Micro-Cap stocks (as represented by
the CRSP Cap-Based 9 Portfolio). Investors normally think of
investments which exhibit low short-term volatility as "safe" or
"conservative" and investments which exhibit high short-term volatility
as "risky." Because of high volatility, it would be unwise to invest
any money in ultra-small stocks (or even in large stocks) which an
investor needs in a one year timeframe. Thus, much more so than other
common stock mutual funds, it would be inappropriate to invest money
which one needs in the immediate future in Bridgeway's Ultra-Small
Company, Ultra-Small Index, or Micro-Cap Limited Portfolios.
Table A also indicates that over longer time periods, investors have been
compensated for higher short-term risk with commensurately
higherreturns.
<TABLE>
<CAPTION>
Table A
Short-term Risk Characteristics of Various Asset Classes
(1926-1997)
<S> <C> <C> <C> <C> <C> <C>
Govt. Corp. Large Micro-Cap Ultra-Small
T-Bills Bonds Bonds Stocks Stocks Stocks
Avg. Annual Return 3.7% 5.2% 5.7% 11.0% 12.7% 13.8%
Std. Deviation 3.3% 9.2% 8.8% 20.3% 33.9% 46.6%
Beta NA NA NA 1.0 1.4 1.7
Worst year decline NA -9.2% -8.1% -43.3% -58.0% -45.2%
Worst year (1940-1996) NA -9.6% -8.1% -26.5% -30.9% -27.8%
% of 1-year declines 0% 28% 22% 28% 29% 33%
% of 3-year declines 0% 14% 11% 13% 20% 23%
% of 5-year declines 0% 9% 4% 10% 13% 19%
</TABLE>
Long-term Risk
While most of the statistics on Table A are intuitive (an investor
generally obtains higher returns only when taking on more risk), there
are some surprising risk characteristics of the asset classes over the
longer timeframes. Assets which appear "safe" over the short-term are
particularly vulnerable to the effects of inflation in the long-term.
Table B presents the worst 16-year cumulative inflation adjusted return
for each of these assets along with the percentage of 16-year periods
from 1926 to 1997 for which returns did not keep up with inflation. On
this basis, stocks do better than T-Bills and bonds, but ultra-small
stocks especially shine. While ultra-small stocks have historically
declined farther in a downturn, they have also generally come back
faster after a decline. However, past performance may not be predictive
of future results. Our overall conclusion is that ultra-small stocks may
be too risky for short-term investments, but are an excellent hedge
against long-terminflation for an investor willing to put up with the
year-to-year volatility one will inevitably experience over any 16-year
period.
<TABLE>
<CAPTION>
Table B
Long-term Risk Characteristics of Various Asset Classes
ADJUSTED FOR INFLATION (1926-1997)
<S> <C> <C> <C> <C> <C> <C>
Govt. Corp. Large Micro-Cap Ultra-Small
T-Bills Bonds Bonds Stocks Stocks Stocks
Worst 16-year
period -43.9% -49.4% -46.3% -14.6% -4.5% +10.0%
% 16-year declines 28.0% 46.0% 35.0% 1.0% 1.0% 0.0%
</TABLE>
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions (in addition to those
indicated in its prospectus) as fundamental policies, which may not be
changed without the favorable vote of the holders of a "majority," as
defined in the Investment Company Act of 1940 (the "1940 Act"), of the
Fund's outstanding voting securities. Under the 1940 Act, the vote of
the holders of a majority of a Fund's outstanding voting securities
means the vote of the holders of the lesser of (i) 67% of the shares of
the Fund represented at a meeting at which the holders of more than 50%
of its outstanding shares are represented or (ii) more than 50% of the
outstanding shares.
As indicated in the following list, the Fund's portfolios may not:
1. Purchase securities on margin, except such short-term credits
as may be necessary for the clearance of transactions.
2. Make short sales of securities or maintain a short position if
such sales or positions exceed 20% of total assets under management.
3. Issue senior securities, except that the Aggressive Growth and
Social Responsibility Portfolios may borrow on a secured or unsecured
basis from banks up to 50% of net assets (not including the amount
borrowed) for the purchase of securities, and any Portfolio may borrow
on a secured or unsecured basis from banks up to 5% of its total assets
on an unsecured basis from banks for temporary or emergency purposes.
In addition, the Ultra-Large 35 Index Portfolio may borrow from banks up
to 50% of net assets for the purpose of selling a security short
"against the box" on a temporary basis to avoid capital gains
distributions.
4. Invest in options or futures if the aggregate initial margins
and premiums required to establish such non-hedging positions exceed 5%
of net assets. In addition, the Ultra-Small Company, Ultra-Small Index,
Micro-Cap Limited, and Ultra-Large 35 Index Portfolios may not invest in
4
<PAGE>
any options and may invest in stock market index futures only as
described in the Prospectus.
5. Invest in options or futures on individual commodities if the
aggregate initial margins and premiums required to establish such
positions exceed 2% of net assets. In addition, only the Aggressive
Growth Portfolio may invest in any commodity options or futures.
6. Buy or sell real estate, real estate limited partnership
interests or other interest in real estate (although it may purchase and
sell securities which are secured by real estate and securities or
companies which invest or deal in real estate.)
7. Make loans (except for purchases of publicly-traded debt
securities consistent with the Fund's investment policies); however, the
Aggressive Growth, Ultra-Small Index, Micro-Cap Limited, and Ultra-Large
35 Index Portfolios may lend its portfolio securities to others on a
fully collateralized basis.
8. Make investments for the purpose of exercising control or
management.
9. Act as underwriter (except to the extent the Fund may be deemed
to be an underwriter in connection with the sale of securities in the
Fund's investment portfolio.) (This restriction in no way prevents the
Fund from acting as distributor of its own shares pursuant to a 12b-1
Plan adopted by shareholders on October 15, 1996.)
10. Invest 25% or more of its total assets (calculated at the time
of purchase and taken at market value) in any one industry.
11. As to 75% of the value of its total assets, invest more than 5%
of the value of its total assets in the securities of any one issuer
(other than obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities), or purchase more than 10% of all
outstanding voting securities of any one issuer.
The Fund observes the following restrictions as a matter of operating
but not fundamental policy, pursuant to positions taken by federal and
state regulatory authorities:
The Fund may not:
12. Purchase any security if as a result the Fund would then hold
more than 10% of any class of securities of an issuer (taking allcommon
stock issues as a single class, all preferred stock issues as a single
class, and all debt issues as a single class).
13. Invest in securities of any issuer if, to the knowledge of the
Fund, any officer or director of the Fund or of the Adviser owns more
than 1/2 of 1% of the outstanding securities of such issuer, and such
directors who own more than 1/2 of 1% own in the aggregate more than 5%
of the outstanding securities of such issuer.
14. Invest more than 5% of the value of its net assets inwarrants
(included in that amount, but not to exceed 2% of the value of the
Fund's net assets, may be warrants which are not listed on the New York
or American Stock Exchange). In addition, the Ultra-Small Company,
Ultra-Small Index, Micro-Cap Limited and Ultra-Large 35 Index Portfolios
may not purchase any warrants.
15. Invest in any security if as a result the Fund would have more
than 5% of its total assets invested in securities of companies which
together with any predecessor have been in continuous operation for
fewer than three years.
16. Invest in oil, gas or mineral related programs, partnerships or
leases.
U.S. GOVERNMENT SECURITIES
The U.S. Government securities in which the Fund may invest include
direct obligations of the U.S. Treasury, such as Treasury bills, notes
and bonds, and obligations issued or guaranteed by U.S. Government
agencies and instrumentalities, including securities that are supported
by the full faith and credit of the United States, such as Government
National Mortgage Association ("GNMA") certificates, securities that are
supported by the right of the issuer to borrow from the U.S. Treasury,
such as securities of the Federal Home Loan Banks, and securities solely
by the credit worthiness of the issuer,such as Federal National Mortgage
Association ("FNMA") and Federal Home Loan Mortgage Corporation
("FHLMC") securities.
FOREIGN SECURITIES
The Fund may invest up to 10% of its assets in foreign securities traded
on Exchanges in the United States. Foreign securities carry incremental
risk associated with: (1) currency fluctuations; (2) restrictions on,
and costs associated with, the exchange of currencies; (3) the
difficulty in obtaining or enforcing a court judgment abroad; (4)
reduced levels of publicly available information concerning issuers; (5)
restrictions on foreign investment in other jurisdictions; (6) reduced
levels of governmental regulation of foreign securities markets; (7)
difficulties in transaction settlements and the effect of this delay on
shareholder equity; (8) foreign withholding taxes; (9) political,
economic, and similar risks, including expropriation and
nationalization; (10) different accounting, auditing, and financial
standards; (11) price volatility; and (12) reduced liquidity in foreign
markets where the securities also trade. While some of these risks are
reduced by investing only in ADR's and foreign securities listed on
American exchanges, even theseforeign securities may carry substantial
incremental risk.
NEW ISSUES AND CLOSED END FUNDS
The Fund may invest up to 5% of total assets in the securities of
"unseasoned issuers," those which together with any predecessor have
been in continuous operation for fewer than three years. These
companies have less historical data on which to evaluate past
performance, are usually small companies, and thus may exhibit higher
volatility and risk than other issues. The Fund is not restricted as to
purchase of "new issues" whice have been in continuous operation for
more than three years, although these may also exhibit higher volatility
and risk.
The Fund may also invest up to 5% of total assets in closed end mutual
funds. These securities may sell at a premium or discount to the net
asset value of their underlying securities. While gaining further
diversification through such investments, the Fund will bear the
additional volatility and risk that, in addition to changes in value of
the underlying securities in the closed end funds, there may be
additional increase or decrease in price due to a change in the premium
or discount in their market prices.
MANAGEMENT
The overall management of the business and affairs of the Fund is vested
with its Board of Directors. The Board approves all significant
agreements between the Fund and persons or companies furnishing services
to it, including the Fund's agreement with its Adviser, Custodian and
Transfer Agent. The day to day operations of the Fund are delegated to
its officers, subject to the investment objectives and policies of the
Fund and to general supervision by the Board of Directors.
The directors and officers of the Fund and of the Adviser, their
business address and principal occupations during the past five years
are
Position
with the Principal Occupation
Fund
John N.R. President President of the Fund (since
Montgomery* and 11/22/93) and the Adviser
Director (since 7/1/93), self employed
from 12/1991 to 7/1993.
Prior to that he was an
executive with transportation
agencies in Texas and N. Carolina
and an engineer/project manager
at MIT.
Karen S. Gerstner Director Attorney and managing
partner, Dinkins Kelly
Lenox Gerstner & Lamb, LLP
Houston, Texas.
Miles Douglas Director Vice President, Wood,
Harper,III Harper, PC, a CPA firm in
Houston, Texas, since
2/1991, Senior Staff
Accountant Pannell Kerr &
Forster 1990-91, Senior
Staff Accountant, Price
Waterhouse 1986-90.
Glen Feagins Treasurer Vice-President/Treasurer of
another mutual fund family
7
<PAGE>
from 1987 to 1992. Self-
employed consultant in the
mutual fund industry and
employee of Bridgeway Capital
Management since 1994.
Joanna Schima Secretary Owner of small business
1988-1993, prior to that,
Telecommunications Manager
for American Capital
Management & Research,
Inc., Houston, Texas
*denotes directors who are "interested persons" of the Fund under the
1940 Act.
The address of all of the Directors and Officers of the Fund is 5650
Kirby Drive, Suite 141, Houston, Texas, 77005-2443.
The fund pays fees of $500 per meeting to directors who are not
"interested persons" of the Fund. Such directors are reimbursed for any
expenses incurred in attending meetings. During fiscal year 1997, the
directors received the following compensation:
<TABLE>
<CAPTION>
Aggregate Pension or Estimated Annual Total
Compensation Retirement Benefits Upon Compensation
Name from Fund Benefits Accrued Retirement from the Fund
of Director
<S> <C> <C> <C> <C>
Karen Gerstner $1,650 N/A N/A $1,650/1/
Miles Douglas
Harper, III $1,650 N/A N/A $1,650/1/
John N.R.
Montgomery $0 N/A N/A $0
</TABLE>
/1/ The directors received this compensation in the form of shares of
the Fund, credited to his or her account.
THE MANAGEMENT AGREEMENT
Subject to the supervision of the Board of Directors, investment
advisory, management and administration services are provided to the
Ultra-Small Company, Aggressive Growth, and Social Responsibility
Portfolios by Bridgeway Capital Management, Inc., (the "Adviser")
pursuant to an Investment Management Agreement dated May 26, 1994 as
amended on April 29, 1998 (the "Agreement"). A second Investment
Management Agreement dated May 26, 1997 as amended on April 29, 1998
addresses the management of the Ultra-Small Index Portfolio and the
Ultra-Large 35 Index Portfolio. A third Investment Management Agreement
dated June 3, 1998 addresses the management of the new Micro-Cap
Limited Portfolio. The Adviser is a Texas corporation organized in 1993
to act as Adviser tothe Fund and is controlled by Mr. John N. R.
Montgomery and his family.
Under both Agreements, the Adviser will provide a continuous investment
program for the Fund and make decisions and place orders to buy, sell or
hold particular securities. The Adviser also will supervise all matters
relating to the operation of the Fund and will obtain for it corporate
officers, clerical staff, office space, equipment and services.
As compensation for Adviser services rendered to the Ultra-Small Index
and Ultra-Large 35 Index Portfolios, and the charges and expenses
assumed and to be paid by the adviser as described above, these
Portfolios pay the Adviser a base fee computed and payable on or about
the last market day of each month at the following annual rate:
.5% of the value of the Ultra-Small Index Portfolio's average daily
net assets and
.08% of the value of the Ultra-Large 35 Index Portfolio's average
daily net assets
As compensation for its services rendered and the charges and expenses
assumed and to be paid by the Adviser as described above, the Aggressive
Growth, Social Responsibility, Ultra-Small Company, and Micro-Cap
Limited Portfolios pays the Adviser a base fee computed and payable
promptly after the last market day of each month at the following annual
rate:
.9% of the value of the Portfolio's average daily net assets
during such month up to $250,000,000;
.875% of the next $250,000,000 of such assets; and
.85% of such assets over $500,000,000,
except that the fee for the Ultra-Small Company and Micro-Cap Limited
Portfolios during the period that the Portfolio's net assets range from
$27.5 million to $55 million will be paid as if the Portfolio had
$55,000,000 under management (that is, $55 million times .009 equals
$495,000), subject to a maximum 1.49% annual rate.
For purposes of calculating such fee, average daily net assets shall be
computed by adding the total asset values less liabilities of each
Portfolio as computed by the Adviser each day (during the month and
dividing the resulting total by the number of days in the month).
Expenses and fees of each Portfolio, including the advisory fee, will be
accrued daily and taken into account in determining net asset value.
For any period less than a full month during which this agreement is in
effect, the fee shall be prorated according to the proportion which such
period bears to a full month.
The Aggressive Growth, Social Responsibility, and Micro-Cap Limited
Portfolio base fee described above will be adjusted each quarterly
period (as defined below) by adding to or subtracting from such rate,
when appropriate, the applicable performance adjustment rate percentage
as described below. The resulting advisory fee rate will then be
applied to the average daily net asset value of the Fund for the
succeeding quarterly period. The advisory fee will be accrued daily and
paid monthly.
The performance adjustment rate shall vary with a Portfolio's
performance as compared to a benchmark index and will range from -0.7%
to +0.7%. The benchmark index for the Aggressive Growth and Social
Responsibility Portfolios wil be the Standard & Poor's 500 Composite
Stock Price Index with dividends reinvested (hereinafter "S & P 500
Index") and for the Micro-Cap Limited Portfolio will be the CRSP Cap-
Based Portfolio 9 Index with dividends reinvested. The performance rate
adjustment will be calculated at 4.76% (Aggressive Growth and Social
Responsibility) and at 2.8% (Micro-Cap Limited) of the difference between
the performance of the Portfolio and that of the benchmark index, except
that there will be no performance adjustment if the difference between
the Portfolio performance and the benchmark index performance is less
than or equal to 2%. The graphs and tables in the Prospectus (see
"Management of the Fund") illustrate the relationship between the
advisory fee and the portfolio performance relative to the benchmark
index.
The performance period shall consist of the most recent five year period
ending on the last day of the quarter (March, June, September,and
December) that the New York Stock Exchange was open for trading. For
example, on February 15, 2006, the relevant five year period would be
from Friday, December 29, 2000 through Friday, December 30, 2005.
The performance of the benchmark index will be the 5 year percentage
increase (or decrease) in the S & P 500 Index/CRSP Cap-Based Portfolio 9
Index with dividends reinvested. The Fund performance will be the
percentage increase (or decrease) of the portfolio net asset value per
share over the performance period and will be calculated as the sum of:
1) the change in the portfolio unit value during such period, 2) the
unit value of portfolio distributions from income or capital gains (long
or short term) having an ex-dividend date occurring within the
performance period and assumed to have been reinvested at the net asset
value on ex-date, and 3) the unit value of capital gains taxes paid or
accrued during the performance period of undistributed realized capital
gains, if any. Thus, the Portfolio performance will be in accordance
with SEC standardized total return formula.
The adjustment to the base advisory fee will not be cumulative. An
increased fee will result even though the performance of the Fund over
some period of time shorter than the Performance Period has been behind
that of the Index and, conversely, a reduction in the base advisory fee
will be made for a month even though the performance of the Fund over
some period of time shorter than the performance Period has been ahead
of that of the Index.
As indicated above, the Fund's expenses (including the monthly base
advisory fee) will be accrued daily. The performance adjustment for
each performance fee period will be computed monthly and accrued daily
in the subsequent monthly period and taken into account in computing the
daily net asset value of a Fund Portfolio's share. However, the
expenses in excess of any maximum expense limitation that is assumed by
the Fund's Adviser, if any, shall not be accrued for the purpose of
computing the daily net asset value of a Fund share.
Since the Aggressive Growth and Social Responsibility Portfolio do not
have a five year operating history, the performance rate adjustment will
be calculated as follows during the initial five year period.
From April 30, 1995 through September 30, 1999, the performance rate
adjustment fee will be calculated based upon a comparison of the
investment performance of each Portfolio and the benchmark index over
the number of quarters that have elapsed since the Fund began
operations. Each time the performance adjustment fee is calculated, it
will cover a longer time span, until it can cover a running five year
period as intended. In the meantime, the early months of the transition
period will have a disproportionate effect on the performance adjustment
of the fee.
Since the Micro-Cap Limited Portfolio does not have a five year
operating history, the performance rate adjustment will be calculated as
follows during the initial five year period.
(a) From Portfolio inception through June 30, 1999 the performance
rate adjustment will not be operative. The advisory fee payable will be
the base fee only.
(b) From July 1, 1999 through June 30, 2003, the performance fee
will be calculated based upon a comparison of the investment performance
of the Portfolio and the benchmark index over the number of quarters
that have elapsed since June 30, 1998. Each time the performance
adjustment fee is calculated, it will cover a longer time span, until it
covers a running five year period as intended. In the meantime, the
early months of the transition period will have a disproportionate
effect on the performance adjustment of the fee.
During the period from July 1, 1996 through June 30, 1997 and in
accordance with the management fee schedules described above, the
Adviser waived and reimbursed the following fees from each of the
Portfolios:
<TABLE>
<CAPTION>
Advisory Fee Expense Waived Waived
Portfolio Per Contract Reimbursement Advis.Fees Accounting Fee
<S> <C> <C> <C> <C>
Ultra-Small
Company $143,395 ($0) ($29,727) ($0)
Aggressive
Growth $28,802 ($0) ($18,126) ($0)
Social
Responsibility $1,596 ($8,092) ($1,596) ($9,811)
</TABLE>
The Net Advisory Fees were paid at the end of each quarter after the
earned fee was adjusted for any expense overage in accordance with the
Adviser's undertaking to maintain an expense ratio at or below 2.0% for
Aggressive Growth and Ultra-Small Company, 0.75% for Ultra-Small Index,
1.9% for Micro-Cap Limited, 1.5% for Social Responsibility, and 0.15%
for Ultra-Large 35 Index.
In addition to the fee payable to the Adviser, the Fund is responsible
for its operating expenses, including: (1) the charges and expenses of
any custodian or depository appointed by the Fund for the safekeeping of
its cash, securities and other property, (2) the charges and expenses
of bookkeeping personnel, auditors, and accountants, computer services
and record keeping, (3) the charges and expenses of any transfer agents
and registrars appointed by the Fund, (4) brokers' commissions and issue
and transfer taxes chargeable to the Fund in connection with securities
transactions to which the Fund is a party, (5) all taxes and corporate
fees payable by the Fund to federal, state or other government agencies,
(6) fee and expenses involved in registering, filing, and maintaining
registrations of the Fund and of its shares with the Securities and
Exchange Commission and qualifying its shares under state or other
securities laws, including the preparation and printing of prospectuses
used for these purposes and for shareholders of the Fund, (7) fees and
expenses involved in registering and maintaining registrations of the
Fund and of its shares with the Securities and Exchange Commission and
qualifying its shares under state or other securities laws, including
the preparation and printing of prospectuses used for these purposes and
for shareholders of the Fund, (8) all expenses of shareholders' and
directors' meetings and of preparing and printing reports to
shareholders, (9) charges and expenses of legal counsel for the Fund in
connection with legal matters relating to the Fund, including without
limitation, legal services rendered in connection with the Fund's
corporate existence, corporate and financial structure and relations
with its shareholders, registrations and qualifications of securities
under federal, state and other laws, issues of securities and expenses
which the Fund has herein assumed, (10) compensation of directors who
are not interested persons of the Adviser, (11) interest expense, (12)
insurance expense, and (13) association membership dues.
The Adviser will not be liable to the Fund for any error of judgment by
the Adviser or any loss sustained by the Fund except in the case of a
breach of fiduciary duty with respect to the receipt of compensation for
services (in which case any award of damages will be limited as provided
in the 1940 Act) or of willful misfeasance, bad faith, gross negligence
or reckless disregard of duty.
The Fund acts as the distributor of its shares pursuant to a 12b-1 Plan
expected to be adopted by shareholders on October 15, 1996. The cost of
distributing shares of the Fund is borne by the Adviser at no cost to
the Fund; thus, there is no "12b-1 fee."
The Agreements were first approved by the Board of Directors on January
17, 1994 and February 27, 1998. The continuation of the agreements was
approved on April 29, 1998 by a majority of the Directors who neither
are interested persons of the Fund nor have any direct or indirect
financial interest in the Agreement or any other agreement related
thereto ("Independent Directors"). The current contracts continue
through June 30, 1998. If not terminated, the Agreement will continue
automatically for successive annual periods, provided that such
continuance is specifically approved at least annually (i) by a majority
vote of the independent Directors cast in person at a meeting called for
the purpose of voting on such approval, and (ii) by the Board of
directors or by vote of a majority of the outstanding voting securities
of the Fund.
The Agreement is terminable by vote of the board of directors or by the
holders of a majority of the outstanding voting securities of a Fund
Portfolio at any time without penalty, on 60 days written notice to the
Adviser. The Agreement also may be terminated by the Adviser on 60 days
written notice to the Fund. The Agreement terminates automatically upon
its assignment (as defined in the 1940 Act).
In addition to the stringent code of ethics described on page 14 of the
prospectus, the Adviser has a unique mission statement which sets it
apart from others in the industry:
Our mission is to:
- -oppose and alleviate the effects of genocide and
oppression,
- -support Christian service,
- -nurture educational causes, and
- -improve the quality of urban life.
Our role in this effort is primarily, but not exclusively, a
financial one. As stewards of others' money, we strive to:
- -uphold the highest standards of integrity.
- -maintain a long term risk-adjusted investment performance
record in the top 5% of investment advisers,*
- -provide extraordinary service quality,
- -achieve a superior (efficient) cost structure,and
Our greatest resource is people. Recognizing this, we strive to:
- -create a positive, fun, and challenging atmosphere,
- -provide fair compensation commensurate with
performance,
- -give regular, peer feedback,
- -spend resources lavishly on hiring and training, and
- -value the family.
*The Adviser can not promise future performance levels, nor do past
results guarantee future returns. However, the Adviser and the Fund
have committed to clearly communicating performance versus industry
benchmarks in each report to shareholders.
The Adviser is also committed to donating a majority of its own
investment advisory fee profits to charitable and non-profit
organizations. To maximize this objective, the adviser seeks a superior
cost structure. There are no expensive perks or luxurious offices. The
quantitative investment methods used do not require a large research
staff. Employees are paid commensurate with performance and market
salary scales, but subject to the following cap: the total compensation
of the highest paid employee can not be more than seven times that of
the lowest paid employee. These policies should also contribute to
lower Fund expense ratios as assets grow.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisor undertakes that in connection with its duties to arrange for
the purchase and the sale of securities held in the portfolio of the
Fund, the Adviser shall select such broker-dealers ("brokers") as shall,
in its judgment, achieve the policy of "best execution", i.e., prompt
and efficient execution at the most favorable securities price. In
making such selection, the Adviser is authorized by the Agreement to
consider the reliability, integrity and financial condition of the
broker. The Adviser also is authorized by the Agreement to consider
whether the broker provides research or statistical information to the
Fund and/or other accounts of the Adviser.
The Advisor undertakes that the commissions paid to brokers may be
higher than another broker would have charged if a good faith
determination is made by the Adviser that the commission is reasonable
in relation to the services provided, viewed in terms of either that
particular transaction or the Adviser's overall responsibilities as to
the accounts as to which it exercises investment discretion and that the
Adviser shall use its judgment in relation to the value of brokerage and
research services provided and need not place or attempt to place a
specific dollar value on such services or on the portion of commission
that such determinations were in good faith, and to show the overall
reasonableness of commission paid, the Adviser shall be prepared to show
that commissions paid (i) were for services contemplated by the
Agreement; and (ii) were for products or services which provide lawful
and appropriate assistance to its decision-making process; and (iii)
were within a reasonable range as compared to the rates charged by
brokers to other institutional investors as such rates may become known
from available information.
The research services discussed above may be in written form orthrough
direct contact with individuals and may include information as to
particular companies and securities as well as market, economic or
institutional areas and information assisting the Fund in the valuation
of its investments. The research which the Adviser receives for the
Fund's brokerage commissions, whether or not useful to the Fund, may be
useful to it in managing the accounts of its other advisory clients, if
any. Similarly, the research received for the commissions of such
accounts may be useful to the Fund. In its last fiscal year ending June
30, 1997, the Fund's Portfolios paid brokerage commissions totaling
$44,738, as follows:
Brokerage
Portfolio Commissions Paid
Aggressive Growth $ 5,094
Social Responsibility $ 227
Ultra-Small Company $39,417
It is the Advisor's present policy to a) conduct essentially all of its
own financial research, and b) not to pay soft dollar commissions of any
kind. The Advisor will inform the Fund Board of Directors of any
changes to this policy.
NET ASSET VALUE
The net asset value of the Fund's shares will fluctuate and is
determined as of the close of trading on the New York Stock Exchange
(currently 4:00 p.m. Eastern time) each business day that the Exchange
is open for business. The Exchange annually announces the days on which
it will not be open for trading. The most recent announcement indicates
that it will not be open on the following days: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. However, the Exchange may close on
days not included in that announcement.
The net asset value per share of each of the Fund's Portfolios is
computed by dividing the value of the securities held by the Portfolio
plus any cash or other assets (including interest and dividends accrued
but not yet received) minus all liabilities (including accrued expenses)
by the total number of Portfolio shares outstanding at such time.
Portfolio securities that are principally traded on a national
securities exchange or the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") are valued at their last sale on
the exchange on which they are principally traded prior to the close of
the New York Stock Exchange or, in the absence of recorded sales, at
their current bid price (long position) or asked price (short
positions.) Other securities and assets for which market quotations are
not readily available are valued at fair value as determined in good
faith using methods approved by the Board of Directors.
REDEMPTION IN KIND
If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment
wholly in cash, the Fund may pay the redemption price in part by a
distribution in kind of securities from the portfolio of the Fund, in
lieu of cash. The Fund has elected to be governed by Rule 18F-1 under
the 1940 Act pursuant to which the Fund is obligated to redeem shares
solely in cash up to the lesser of $250,000 or one percent of the net
asset value of the Fund during any 90 day period for any one
shareholder. Should redemptions by any shareholder exceed such
limitation, the Fund will have the option of redeeming the excess in
cash or in kind. If shares are redeemed in kind, the redeeming
shareholder would incur brokerage costs in converting the assets into
cash.
TAXATION
For the current and all subsequent fiscal years, the Fund intends to
elect to be and to qualify for treatment as a regulated investment
company ("RIC") under Subchapter M of the Internal Revenue Code (the
"Code"). In each taxable year that the Fund so qualifies, the Fund will
be relieved of federal income tax on that part of its investment company
taxable income (consisting generally of interest and dividend income and
net short term capital gain) and net capital gain that is distributed to
shareholders. Since the Fund intends to engage in various hedging
transactions, under various provisions of the Code, the result of such
transactions may be to change the character of recognized gains or
losses, accelerate the recognition of certain gains and losses, and
defer the recognition of certain losses.
In order to qualify for treatment as an RIC, the Fund must distribute
annually to its shareholders at least 90% of its investment company
taxable income and must meet several additional requirements. They
include (1) at least 90% of the Fund's gross income each taxable year
must be derived from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of
securities or foreign currencies, or other income derived with respect
to it business of investing in securities or currencies; (2) less than
30% of the Fund's gross income each taxable year may be derived from the
sale or other disposition of securities held for less than three months;
(3) at the close of each quarter of the Fund's taxable year, at least
50% of the value of its total assets must be represented by cash and
cash items, U.S. Government securities, securities of other RICs and
other securities, limited in respect of any one issuer, to an amount
that does not exceed 5% of the value of the Fund, and that does not
represent more than 10% of the outstanding voting securities of such
issuer; and (4) at the close of each quarter of the Fund's taxable year,
not more than 25% of the value of its assets may be
invested in securities (other than U.S. Government securities or the
securities of other RICs) of any one issuer.
The Fund will be subject to a nondeductible 4% excise tax to the extent
it fails to distribute by the end of any calendar year substantially all
of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31st of that year, plus certain other
amounts.
Dividends and Distributions
Dividends from the Fund's investment company taxable income (whether
paid in cash or invested in additional shares) will be taxable to
shareholders as ordinary income to the extent of the Fund's earnings and
profits. Distributions of the Fund's net capital gains (whether paid in
cash or invested in additional shares) will be taxable to shareholders
as long-term capital gain, regardless of how long they have held their
Fund shares.
Dividends declared by the Fund in October, November, or December of any
year and payable to shareholders of record on a date in one of such
months will be deemed to have been paid by the Fund and received by the
shareholders on the record date if the dividends are paid by the Fund
during the following January. Accordingly, such dividends will be taxed
to shareholders for the year in which the record date falls.
Withholding
The Fund is required to withhold 20% of all dividends, capital gain
distributions and repurchase proceeds payable to any individuals and
certain other non corporate shareholders who do not provide the Fund
with a correct taxpayer identification number. The Fund also is
required to withhold 31% of all dividends and capital gain distributions
paid to such shareholders who otherwise are subject to backup
withholding.
PERFORMANCE INFORMATION
Total Return
Average annual total return quotations, used in the Fund's advertising
and promotional material, for the 1,5 and 10 year periods (when
available) ended on the date of the most recent balance sheet included
in the registration statement are determined by finding the average
annual compounded rates of return over the 1, 5, and 10 year periods
that would equate the initial amount invested to the ending redeemable
value, by the following formula:
P((1 + T) raised to the power of n ) = ERV
where "P" equals hypothetical initial payment of $1,000; "T" equals
average annual total return; "n" equals the number of years; and "ERV"
equals the ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of the 1, 5, or 10
years periods at the end of the 1, 5, or 10 year periods (or fractional
portion thereof).
Any disclosure will also include the length of and the last day in the
period used in computing the quotation and a description of the method
by which average total return is calculated.
Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the
most recent quarter prior to submission of the advertising for
publication. Average annual total return, or "T" in the formula, is
computed by finding the average annual compounded rates of return over
the period that would equate the initial amount invested to the ending
redeemable value. Average annual total return assumes the reinvestment
of all dividends and distributions.
Yield
Annualized yield quotations based on a 30-day (or one month) period
ended on the date of the most recent balance sheet included in the
Fund's registration statement, and used in the Fund's advertising and
promotional materials are computed by dividing the net investment income
per share earned during the period by the maximum offering price per
share on the last day of the period, according to the following formula:
YIELD = 2 [((((a-b) / cd) + 1) raised to the power of 6) - 1 ]
where "a" equals dividends and interest earned during the period; "b"
equals expenses accrued for the period, (net of reimbursements); "c"
equals the average daily number of shares outstanding during the period
that are entitled to receive dividends and "d" equals the maximum
offering price per share on the last day of the period.
Any such disclosure will also include the length of and the last day in
the period used in computing the quotation and a description of the
method by which yield is calculated.
Except as noted below, in determining net investment income earned
during the period ("a" in the above formula), the Fund calculates
interest earned on each debt obligation held by it during the period by
(1) computing the obligation's yield to maturity, based on the market
value of the obligation (including actual accrued interest) on the last
business day of the period or, if the obligation was purchased during
the period, the purchase price plus accrued interest; (2) dividing the
yield to maturity by 360 and multiplying the resulting quotient by the
market value of the obligation (including actual accrued interest).
Once interest earned is calculated in this fashion for each debt
obligation held by the Fund, net investment income is then determined by
totaling all such interest earned.
For purposes of these calculations, the maturity of an obligation with
one or more call provisions is assumed to be the next date on which the
obligation reasonably can be expected to be called or, if not, the
maturity date.
Other Information
The Fund's performance data quoted in advertising and other promotional
materials represents past performance and is not intended to predict or
indicate future results. The return and principal value of an
investment in the Fund will fluctuate, and an investor's redemption
proceeds may be more or less than the original investment amount. In
advertising and promotional materials the Fund may compare its
performance with data published by Lipper Analytical Services, Inc.
("Lipper"), Morningstar, Inc. ("Morningstar") or CDA Investment
Technologies, Inc. ("CDA"); Fund rankings and other data, such as
comparative asset, expense and fee levels, published by Lipper,
Morningstar or CDA; and advertising and comparative mutual fund data and
ratings reported in independent periodicals including, but not limited
to, The Wall Street Journal, Money, Forbes, Value Line, Business Week,
Financial Word and Barron's.
GENERAL INFORMATION
The Fund, incorporated in the State of Maryland on October 19, 1993 is
authorized to issue 1,000,000,000 shares of common stock, $.001 par
value (the "Common Stock"). Shares of the Fund, when issued, are fully
transferable and redeemable at the option of the Fund in certain
circumstances as described in the Fund's Prospectus under "How to Redeem
Shares." All Fund shares are equal as to earnings, assets, and voting
privileges. There are no conversion, pre-emptive or other subscription
rights. Under the Fund's Articles of Incorporation, the Board of
Directors may authorize the creation of additional series of common
stock, with such preferences, privileges, limitations and voting and
dividend rights as the Board may determine. Each share of each series
of the Fund's outstanding shares is entitled to share equally in
dividends and other distributions and in the net assets belonging to
that series of the Fund on liquidation. Accordingly, in the event of
liquidation, each share of the Fund's common stock is entitled to its
portion of all of the Fund's assets after all debts and expenses have
been paid. The shares of the Fund do not have cumulative voting rights
for the election of Directors.
It is not contemplated that regular annual meetings of shareholders will
be held. There normally will be no meetings of shareholders for the
purpose of electing directors unless and until such time as less than a
majority of the directors holding office have been elected by
shareholders, at which time the directors then in office will call a
shareholders' meeting for the election of directors. The Fund has
undertaken to afford shareholders certain rights, including the right to
call a meeting of shareholders for the purpose of voting on the removal
of one or more directors. Such removal can be effected upon the action
of two-thirds of the outstanding shares of the Fund. The directors are
required to call a meeting of shareholders for the purpose of voting on
the question of removal of any director when requested in writing to do
so by shareholders of record of not less than 10% of the Fund's
outstanding shares. The directors will then, if requested by the
applicants, mail at the applicants' expense the applicants'
communication to all other shareholders.
The following individuals own more than 5% of the outstanding shares of
each portfolio of the Fund as of June 30, 1997.
<TABLE>
<CAPTION>
Percentage Ownership
Ultra- Aggr. Social
Name Address Small Growth Respons. Total
<S> <C> <C> <C> <C> <C>
Donaldson, Lufkin P.O. Box 2052 4.6% 4.6% 6.2% 4.7%
and Jenrette & Co. Jersey City, NJ 07303
National Financial One World Fin'l Center 13.3% 12.1%
Services Corp. 200 Liberty St.
New York NY 10281
Technical Risks 2020 N. Memorial 6.1% 10.8% 2.0%
Way Houston, 77007
Gross, G. 9202 Triola Lane 10.7% 0.6%
Houston, TX 77036
Silard, J. 6916 Wilson Ln. 10.0% 0.4%
Bethesda, MD 20817
Sisters of St. c/o Allegheny 7.4% 0.2%
Francis Financial Group
3000 McKnight E Drive
Pittsburg, PA 15237
Sisters of the c/o Allegheny 6.6% 0.2%
Holy Cross Financial Group
3000 McKnight E Drive
Pittsburg, PA 15237
Sisters of Notre c/o Allegheny 5.9% 0.1%
Dame Financial Group
3000 McKnight E Drive
Pittsburg, PA 15237
First Trust Corp. PO Box 173301 5.1% 0.2%
Denver, CO 80217
Kern, K. 4444 Richmond 9.9% 2.1%
Houston, TX 77027
Total above 17.8% 22.2% 17.8% 22.7%
All officers/directors 0.3% 1.2% 7.6% 0.6%
Part C
OTHER INFORMATION
Item 24.Financial Statements and Exhibits
(a)Financial Statements (Incorporated by reference)
(b)Exhibits
1. Charter of Registrant (Incorporated by reference)
2. By-laws of Registrant (Incorporated by reference)
3. Inapplicable
4. Inapplicable as By-Laws provide for no stock certificates
5. Management Contracts for Micro-Cap Limited Portfolio
6. Inapplicable
7. Inapplicable
8. Custodian Agreement (Incorporated by reference)
9. None as Registrant will act as its own transfer agent
10. Opinion of Counsel (Incorporated by reference)
11. Consent of Independent Auditors (Incorporated by reference)
12. Inapplicable
13. Investment Representation letter from initial Shareholders(Incorporated
by reference)
14. Inapplicable
15. 12b-1 Plan
16. Inapplicable
Item 25.Persons controlled by or under Common Control with Registrant
NONE
<PAGE>
Item 26.Number of Holders of Securities
(1) Number of Record Holders
Title of Class as of June 30, 1997.
Ultra-Small Portfolio 2567
Aggressive Growth Portfolio 213
Social Responsibility Portfolio 54
Item 27. Indemnification
See Indemnification Section of By-Laws which is incorporated here by
reference.
Registrant will maintain with Rollins Executive Risk Services Directors and
Officers Errors and Omissions liability insurance covering (among other
things) amounts which Registrant may pay pursuant to the foregoing
indemnification provisions.
Item 28. Business and Other Connections of Investment Adviser
As stated in the Prospectus and Statement of Additional Information, the
Investment Adviser was organized in 1993 and will act as an Investment
Adviser to other individuals, businesses, and registered investment
companies.
Item 29. Principal Underwriters
Bridgeway Fund is the distributor of its own securities.
Item 30. Location of Accounts and Records
Accounts and Records of the Registrant are maintained at the offices of the
Registrant, its Adviser and Distributor at 5650 Kirby Drive, Suite 141,
Houston, Texas 77005-2443. Custody records are maintained at the offices
of the Registrant's Custodian Bank, River Oaks Trust Company, c/o Compass
Bank at 2001 Kirby Drive, Houston, Texas 77005-2443.
Item 31. Management Services
Other than as set forth under MANAGEMENT in the Statement of Additional
Information, Registrant is not a party to any management related service
contract.
Item 32. Undertakings
Incorporated by reference.
<PAGE>
[TYPE] EX-99.B05
[DESCRIPTION] MANAGEMENT CONTRACTS
MANAGEMENT CONTRACT
AGREEMENT, made this 3rd day of June, 1998 between the Micro-Cap
Limited Portfolio (hereinafter called the "Portfolio") of Bridgeway
Fund, Inc., a Maryland corporation (hereinafter called the "Fund"),
and Bridgeway Capital Management, Inc., a Texas corporation
(hereinafter sometimes called the "Adviser").
WITNESSETH:
WHEREAS the Fund and the Adviser wish to enter into an agreement
setting forth the terms on which the Adviser will perform certain
services for the Fund;
NOW THEREFORE, in consideration of the premises and the covenants
contained hereinafter, the Fund and the Adviser agree as follows:
1. The Fund hereby employs the Adviser to manage the investment
and reinvestment of the assets of the Fund and to administer its
affairs, subject to the supervision of the Board of Directors of the
Fund, for the period and on the terms in this agreement set forth.
The Adviser hereby accepts such employment and agrees during such
period, at its own expense, to render the services and to assume the
obligations herein set forth, for the compensation herein provided.
The Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise expressly provided
or authorized, have no authority to act for or represent the Fund in
any way or otherwise be deemed as agent of the Fund.
2. The Adviser, at its own expense, shall furnish to the Fund
office space in the offices of the Adviser or in such other place as
may be agreed upon from time to time, and all necessary office
facilities, equipment and personnel (with the exception of
bookkeeping, auditing, securities filing and registration, and
accounting personnel) for managing the affairs and investments and
keeping the Fund's records and shall arrange, if desired by the Fund,
for members of the Adviser's organization or its affiliates to serve
without salaries from the Fund as officers or agents of the Fund. The
Adviser assumes and shall pay or reimburse the Fund for: (1) the
compensation of the directors of the Fund who are interested persons
of the Adviser, and the compensation of the officers of the Fund as
such (with the exception of any portion of the Treasurer or
Secretary's time spent on bookkeeping, auditing, state registration,
and accounting), and (2) all expenses incurred by the Adviser or by
the Fund in connection with the management of the investment and
reinvestment of the assets of the Fund and the administration of the
affairs of the Fund, other than those specifically assumed by the Fund
herein.
Except as otherwise expressly provided above, the Fund assumes
and shall pay all expenses of the Fund, including, without limitation:
(1) the charges and expenses of any custodian or depository appointed
by the Fund for the safekeeping of its cash, securities and other
property, (2) the charges and expenses of bookkeeping personnel,
auditors, and accountants, computer services related to Portfolio
accounting and record keeping, (3) the charges and expenses of any
transfer agents and registrars appointed by the Fund, (4) brokers'
commissions and issue and transfer taxes chargeable to the Fund in
connection with securities transactions to which the Fund is a party,
(5) all taxes and corporate fees payable by the Fund to federal, state
or other government agencies, (6) fees and expenses involved in
registering and maintaining registrations of the Fund and of its
shares with the Securities and Exchange Commission and qualifying its
shares under state or other securities laws, including the preparation
and printing of prospectuses used for these purposes and for
shareholders of the Fund, (7) all expenses of shareholders' and
directors' meetings and of preparing and printing reports to
shareholders, (8) charges and expenses of legal counsel for the Fund
in connection with legal matters relating to the Fund, including
without limitation, legal services rendered in connection with the
Fund's corporate existence, corporate and financial structure and
relations with its shareholders, registrations and qualifications of
securities under federal, state and other laws, issues of securities
and expenses which the Fund has herein assumed, (9) compensation of
directors who are not interested persons of the Adviser, (10) interest
expense, (11) insurance expense, and (12) association membership dues.
<PAGE>
The services of the Adviser to the Portfolio hereunder are not to
be deemed exclusive, and the Adviser shall be free to render similar
services to others so long as its services hereunder be not impaired
thereby.
3. As compensation for its services rendered and the charges and
expenses assumed and to be paid by the Adviser as described above, the
Fund pays the Adviser during the first year through June 30, 1999 a
base fee computed and payable within two business days of the last
market day of each month at the following annual rate:
.9% of the value of the Portfolio's average daily net assets
during such month up to $27,500,000;
during the period that the Portfolio's net assets range
from
$27,500,000 to $55,000,000, the fee will be paid as if
the Portfolio had $55,000,000 under
management ($55 million times .009 equals $495,000),
subject to a maximum of 1.49% annual rate
.85% of such assets over $500,000,000,
For purposes of calculating such fee, average daily net assets
shall be computed by adding the total asset values less liabilities of
the Portfolio as computed by the Adviser each day (during the month
and dividing the resulting total by the number of days in the month).
Expenses and fees of the Portfolio, including the advisory fee, will
be accrued daily and taken into account in determining net asset
value. For any period less than a full month during which this
agreement is in effect, the fee shall be prorated according to the
proportion which such period bears to a full month.
After June 30, 1999, the base fee described above will be
adjusted each Quarterly Period (as defined below) by adding to or
subtracting from such rate, when appropriate, the applicable
performance adjustment rate percentage as described below. The
resulting advisory fee rate will then be applied to the average daily
net asset value of the Fund for the succeeding quarterly period. The
advisory fee will be paid monthly and will be one-twelfth (1/12th) of
the resulting dollar figure.
The performance adjustment rate shall vary with the Portfolio's
performance as compared to the performance of the CRSP Cap-based
Portfolio 9 Index with dividends reinvested (hereinafter "Index") and
will range from -.7% to +.7%; the performance rate adjustment will be
calculated at 2.8% of the difference between the performance of the
Fund and that of the Index, except that there will be no performance
2
<PAGE>
adjustment if the difference between the Fund performance and the
Index performance is less than or equal to 2%. The graph and table in
the Prospectus (see "Management of the Fund") illustrate the
relationship between the advisory fee and the fund performance
relative to the Index.
The performance period shall consist of the most recent five year
period ending on the last day of the quarter (March, June, September,
and December) that the New York Stock Exchange was open for trading.
For example, on February 15, 2006, the relevant five year period would
be from Friday, December 29, 2000 through Friday, December 30, 2005.
The Fund performance will be the percentage increase (or
decrease) of the portfolio net asset value per share over the
performance period and will be calculated as the sum of: 1) the
change in the portfolio unit value during such period, 2) the unit
value of portfolio distributions from income or capital gains (long or
short term) having an ex-dividend date occurring within the
performance period and assumed to have been reinvested at the net
asset value on ex-date, and 3) the unit value of capital gains taxes
paid or accrued during the performance period of undistributed
realized capital gains, if any. Thus, the Fund performance will be in
accordance with SEC standardized total return formula.
The adjustment to the base advisory fee will not be cumulative.
An increased fee will result even though the performance of the Fund
over some period of time shorter or longer than the Performance Period
has been behind that of the Index and, conversely, a reduction in the
base advisory fee will be made for a month even though the performance
of the Fund over some period of time shorter or longer than the
performance Period has been ahead of that of the Index.
As indicated above, the Fund's expenses (including the monthly
base advisory fee) will be accrued daily. The performance adjustment
for each performance fee period will be computed monthly and accrued
daily in the subsequent monthly period and taken into account in
computing the daily net asset value of a Fund Portfolio's share.
However, the expenses in excess of any maximum expense limitation that
is assumed by the Fund's Adviser or Distributor, if any, shall not be
accrued for the purpose of computing the daily net asset value of a
Fund share.
Since the Fund does not have a five year operating history, the
performance rate adjustment will be calculated as follows during the
initial five year period.
(a) From Fund inception through June 30, 1999 the performance
rate adjustment will not be operative. The advisory fee
payable will be the base fee only.
(b) From July 1, 1999 through June 30, 2003, the performance
rate adjustment fee will be calculated based upon a comparison
of the investment performance of the Portfolio and the Index
over the number of quarters that have elapsed since June 30,
1998. Each time the performance adjustment fee is calculated,
it will cover a longer time span, until it can cover a running
five year period as intended. In the meantime, the early
3
<PAGE>
months of the transition period will have a disproportionate
effect on the performance adjustment of the fee.
4. The Fund shall cause its books and accounts to be audited at
least once each year by a reputable, independent public accountant or
organization of public accountants who shall render a report to the
Portfolio.
5. Subject to and in accordance with the Articles of
Incorporation of the Fund and of the Certificate of Incorporation of
the Adviser, respectively, it is understood that directors, officers,
agents and stockholders of the Fund are or may be interested in the
Adviser (or any successor thereof) as directors, officers or
stockholders, or otherwise, that directors, officers, agents and
stockholders of the Adviser are or may be interested in the Fund as
directors, officers, stockholders or otherwise, that the Adviser (or
any such successor) is or may be interested in the Fund as stockholder
or otherwise and that the effect of any such adverse interests shall
be governed by said Articles of Incorporation and Certificate of
Incorporation, respectively.
6. This agreement shall continue in effect until June 30, 1999
and thereafter from year to year if its continuance after said date is
specifically approved on or before said date and at least annually
thereafter by vote of a majority of the outstanding voting securities
of the Fund or by the Board or Directors of the Fund, and in addition
thereto by a majority of the Directors of the Fund who are not parties
to the agreement or interested persons of the Adviser or affiliated
with any such party except as directors of the Fund, provided,
however, that: (1) this agreement may at any time be terminated
without the payment of any penalty either by vote of the Board of
Directors of the Fund or by vote of a majority of the outstanding
voting securities of the Fund, on sixty days' written notice to the
Adviser, (2) this agreement shall immediately terminate in the event
of its assignment (within the meaning of the federal Investment
Company Act of 1940), and (3) this agreement may be terminated by the
Adviser on ninety days' written notice to the Fund. Any notice under
this agreement shall be given in writing, addressed and delivered, or
mailed postpaid, to the other party at any office of such party.
7. This agreement may be amended at any time by mutual consent of
the parties, provided that such consent on the part of the Fund shall
have been approved by vote of a majority of the outstanding voting
securities of the Fund.
IN WITNESS WHEREOF the parties have hereto executed this
agreement on the day and year first above written.
BRIDGEWAY FUND, INC.
By: _______________________
President
BRIDGEWAY CAPITAL MANAGEMENT, INC.
By: _______________________
President
<PAGE>
xxxxxxxxx
[TYPE] EX-99.B08
[DESCRIPTION] CUSTODIAN AGREEMENT
CUSTODY ACCOUNT
Agreement
River Oaks Trust Company
2001 Kirby
Houston, Texas 77019
Gentleman:
You have requested to open a custody account for and in the name of the
undersigned, and to hold therein stocks, bonds, securities, cash and other
property deposited with or collected by you from time to time for such
account subject to the following instructions and such subsequent
instructions as may be mutually agreed upon in writing. Such instructions
and this agreement shall remain in force until revoked by written notice
sent by either party to the other, or until the death of the undersigned if
a corporation and written notification to you thereof. It is expressly
understood that the undersigned has the power to transfer ownership and to
grant the powers for which provision is made below.
INSTRUCTIONS
Orders for purchase and sale of securities in the custody account shall be
placed by the undersigned for the account and risk of the undersigned with
brokers selected by the undersigned and you shall not be liable or
accountable for any act or omission of such brokers or similar agents. You
are authorized to deliver securities against payment and to receive
securities against payment for said account in accordance with instructions
that will be given to you by the undersigned.
Dividends, interest and other income when collected by you will be
deposited in the account and distributed as instructed, but no more than
monthly.
The proceeds of sales, redemptions, collections and other receipts of
principal collected in accordance with the instructions of the undersigned,
shall be credited to the principal account of the undersigned. The cost and
expenses of purchases made upon instructions of the undersigned and other
items chargeable in connection with this account shall be charged to the
above described principal account, except that accrued interest shall be
charged to income account.
You are to notify the undersigned upon receipt of notice by you of any call
for redemption, subscription rights, merger, consolidation, reorganization,
recapitalization or similar proceeding affecting the property held in the
account and you shall take such action in respect thereto as may be
directed by the undersigned. You shall have no duty or responsibility to
notify the undersigned of any calls for redemption which do not appear in
the standard New York financial publications.
You are not to execute and file management proxies for stocks registered in
the name of your nominee. Proxies will be forwarded to the undersigned
within ten (10) business days after receipt by you. No financial statements
or reports are to be forwarded, unless so directed through the election on
attached Exhibit B.
You may hold owner's registered securities in the name of your nominee.
Whenever it becomes advisable to do so, you are authorized to exchange
temporary for definitive certificates for the new or overstamped
certificates evidencing a change in par value or company name.
In consideration of your registration of any stocks, bonds, securities and
other property in the name of your nominee, the undersigned agrees to pay
on demand to you or your nominee the amount of any loss or liability
actually paid for the stockholders' assessments, or otherwise, claimed or
asserted against you or against your nominee by reason of such
registration. In the event of termination of this agreement, you shall have
the right to transfer to the undersigned all stocks, bonds, securities and
other property registered in the name of your nominee and you shall charge
all taxes and other expenses incident to such transfer to the account of
the undersigned.
You are authorized and empowered in the name and on behalf of the
undersigned to execute any certificates of ownership or other reports which
are or may hereafter be required by any regulation of the Internal Revenue
Department, or other authority of the United States, so far as the same are
required in the connection with any property which is now or may be in
your possession hereunder, claiming no exemptions is to be described as
follows:
Name Bridgeway Fund, Inc.
Address 5650 Kirby Drive, Suite 141
Houston, Texas 77005
The undersigned agrees to notify you immediately in writing of any change
in such status.
You shall send the undersigned any Investment Advisor designated in
paragraph 18, unless instructed to the contrary, a list of assets
comprising the account, in the usual form prepared by you for similar
accounts on a quarterly basis. Annually you are to send the undersigned
and any such Investment Advisor a statement of receipts and disbursements.
All instructions with respect to this account must be in writing and
personally signed by a duly authorized representative of Bridgeway Fund,
Inc. and appropriate specimen signatures are attached hereto.
Notwithstanding the forgoing, you may, in your discretion, accept such
directions or instructions whether given orally, by telephone, telegraph,
cable or radio, which you believe to be genuine, but you shall not be
liable for executing, failing to execute or for any mistake in the
execution of such orders in case of willful default, bad faith or gross
negligence.
All communications which are to be furnished or forwarded to the
undersigned or the Investment Advisor shall be sent by mail addressed to
the undersigned at last address on your records, provided that in case you
in your sole discretion shall determine that an emergency exists, you may
use such other means of communication as you shall deem advisable.
You are under duty to supervise, recommend or advise the undersigned
relative to the investment, purchase, sale, retention or other disposition
of any property held hereunder.
You shall be entitled to receive as fee for services hereunder an amount as
indicated by separate letter agreement dated November 29, 1993.
Either you or the undersigned at any time may terminate the agreement by
notice in writing to the other, whereupon you shall be under no obligation
except to deliver the undersigned any securities or other property in this
account, including any cash; provided, however, you shall be authorized to
deduct from the cash accounts of all of your unpaid fees or charges then
due you; and, if the undersigned terminates this agreement within one year
from the date hereof, you shall be entitled to your full compensation for
the entire first year as though said account had not been terminated.
Termination, however effected, shall not affect or invalidate any action
taken by you pursuant hereto and prior to receipt by you of notice of such
termination from duly authorized persons.
You are hereby authorized to hold cash awaiting investment or distribution
uninvested for a reasonable time and without liability for the payment of
interest thereon.
Special instructions: (if applicable)
Until further notice: Bridgeway Capital Management is the Investment
Advisor for all purposes stated herein and appropriate specimen signature
are attached hereto.
Employer Identification Number: See attached Forms SS-4.
Grantor of Custodian Agreement:
BRIDGEWAY FUND, INC. RIVER OAKS TRUST COMPANY
Signature By:/s/ John Montgomery By:/s/ Virginia K. Simmons
John Montgomery, President Title: Virginia K. Simmons
Date: 5/31/94 Date 6/1/94
SPECIMEN SIGNATURES
Bridgeway Fund, Inc.
/s/ John Montgomery
John Montgomery Title
/s/ John Marris
John Harris Title
Bridgeway Capital Management
/s/ John Montgomery
John Montgomery Title
/s/ John Harris
John Harris Title
RIVER OAKS TRUST COMPANY
A Compass Bank Affiliate
November 29, 1993
Mr. John Montgomery
Bridgeway Fund, Inc.
5650 Kirby Drive, Suite 141
Houston, Texas 77005
Re: Bridgeway Fund, Inc. Custody Accounts
Dear John:
All custody accounts for Bridgeway Fund, Inc. shall be combined for fee
purposes and the following fee schedule shall apply:
Annual Asset Fee
Current Market Value Percentage Rate
First $10,000,000 .14%
Next $30,000,000 .12%
Over $40,000,000 .10%
The minimum asset fee is $10,000.00 and shall apply for all accounts,
combined, including any portfolios that may be added in the future.
This fee schedule may be amended at any time by written consent of both
parties to the custody agreement.
Sincerely,
/s/ Sherry Ashley
Sherry Ashley,CFP
Trust Assistant
SGA:hs
EXHIBIT B
Forms W9 for each portfolio
EXHIBIT C
Dear Customer:
Federal Regulation require all trust companies to adhere to standards in
the record keeping and confirmation processes for security transactions.
Such regulations require, in part, that we furnish each customer with
written notification of all security transactions within five business days
of the actual transaction. The regulations also provide, however, that the
information is otherwise satisfactory furnished.
All purchase and sale transactions reflect the description, par value or
shares, price, commission, trade date and broker. This information is
supplied directly from the broker confirmation and is being placed on your
statement as a part of the security purchase or sale. We feel that a
separate written notification mailed to you five business days from the
date of the transaction would be costly and redundant. If you are ever in
need of additional information concerning a particular transaction, that
information is available to you from the records we keep.
In order for the trust company to be in compliance with these requirements,
please sign and date the lower portion of this letter.
/s/ John Montgomery 11/29/93
/s/ Roy Collins
Signature Trust Officer
RIVER OAKS TRUST COMPANY
EXHIBIT D
This letter shall serve as my instruction to River Oaks Trust Company to
invest the cash balances in the captioned account in the Starburst Funds
listed below.
I have placed a check in the line to the left of the name of the fund or
funds I authorize you to use:
__x_Starburst Money Market Fund (Unless other arrangements are made.)
____Starburst Government Money Market Fund
You are directed to buy or sell a sufficient number of shares of the
Fund(s) to cover any cash management needs for the referenced account.
I acknowledge receipt of the prospectus for the Starbust Fund and my
accompanying letter. I understand that investment in the Starburst Funds is
not FDIC insured. Furthermore, I understand that River Oaks Trust Company
and its affiliate, Central Bank of the South, will share equally in the
investment advisory fee from the fund of up to .4% of the Fund balance.
I have full power to direct the investment of all assets in the above
account and to amend documents governing the account. The direction
contained in this letter shall constitute an amendment to the documents
governing my account and shell continue in effect until revoked by written
notic3e from me to River Oaks Trust Company.
Sincerely,
/s/ John Montgomery 11/28/93
AMENDMENT
TO THE CUSTODY ACCOUNT AGRREMNT
BRIDGEWAY FUND, INC. - RIVER OAKS TRUST COMPANY
The Custody Account agreement dated June 1, 1994 is amended to include:
Payment of Fund expenses from the trust account will be made after
submitting adequate documentation signed by two officers of the Fund. This
documentation may be sent electronic facsimile.
BRIDGEWAY FUND, INC. RIVER OAKS TRUST COMPANY
By:/s/ John Montgomery By:/s/Virginia K. Simmons
Title:President Title:Vice President & Trust Officer
Date: 4/19/96 Date: 4/19/96
SPECIMEN SIGNATURES
Bridgeway Fund, Inc.
Bridgeway Capital Management
AMENDMENT
TO THE CUSTODY ACCOUNT AGRREMNT
BRIDGEWAY FUND, INC. - RIVER OAKS TRUST COMPANY
The Custody Account agreement dated June1, 1994 is amended to include the
following fee schedule:
Under $25 million 1.00 basis point
$25 - $100 million 0.75 basis point
$100 - 200 million 0.50 basis point
Over $200 million 0.25 basis point
In addition, $9.00 per security transaction. $2,400 minimum per portfolio
per year. $2.00 per IRA.
BRIDGEWAY FUND, INC. RIVER OAKS TRUST COMPANY
By: /s/ John Montgomery By:/s/ Virginia K. Simmons
Title: President Title: Vice President & Trust Officer
Date: 4/19/98 Date: 4/19/98
<PAGE>
</TABLE>
