<PAGE> 1
February 13, 1999
Dear Fellow Aggressive Growth Shareholder,
Overall Summary
Following the poorest quarter since inception, the fourth quarter was our best,
up an astounding 38.6%. This quarterly performance trounced each of our
benchmarks, more than recovering the loss of the prior quarter. It was a quarter
in which active management helped a lot. We picked up some very cheap mid-cap
growth stocks in the October downturn, increased our exposure to the Internet in
October and November, and then picked up some micro-cap stocks in late December.
Each of these moves was timely. For the quarter, we ranked 7th of 153 capital
appreciation funds according to Morningstar. We are still shy of our peak
reached on April 22 of last year, however.
For the year, we were up a very strong 19.3%. For the trailing three year
period, we ranked 16th of 103 capital appreciation funds according to
Morningstar. I am not displeased with this performance given we have achieved it
in a period of large-company dominance--not our strong suit.
Performance Summary
The table below presents our December quarter, one year, and life-to-date
financial results according to the formula required by the SEC. The graph below
shows our quarterly performance relative to these benchmarks. I am pleased with
our outperformance of the Russell 2000 Index (the index closest in size to our
companies over this period) by 9+% per year. We haven't caught the S&P 500 yet,
but we made good progress in the last quarter.
<TABLE>
<CAPTION>
Dec. Qtr. 1 Year Life-to-Date
10/1/98 1/1/98 8/5/94 to
to 12/31/98 to 12/31/98 12/31/98**
----------- ----------- ------------
<S> <C> <C> <C>
Aggressive Growth Portfolio 38.6% 19.3% 24.0%
S&P 500 Index (large companies)* 21.4% 28.7% 27.9%
Russell 2000 (small companies)* 16.3% (2.6)% 14.8%
Lipper Capital Appreciation Funds* 22.6% 20.0% 19.4%
</TABLE>
* The Russell 2000 and S&P 500 are unmanaged indexes of large and small
companies, respectively, with dividends reinvested. The Lipper Capital
Appreciation Funds reflect the aggregate record of more aggressive domestic
growth mutual funds as reported by Lipper Analytical Services, Inc. Past
performance does not guarantee future returns.
** Life-to-date returns are annualized; quarterly returns are not annualized.
AGGRESSIVE GROWTH GRAPH INFORMATION:
Title: Growth of $10,000 Invested in various Funds and Indexes from 8/5/94 to
12/31/98
Shows the growth of $10,000 in the Bridgeway Aggressive Growth Portfolio, the
Lipper Capital Appreciation Funds, the Russell 2000 Index and the S&P 500
Index. As of 12/31/98 the $10,000 had grown to $25,782 in the Bridgeway
Aggressive Growth Portfolio, $29,528 in the S&P Index, $18,393 in the Russell
2000 Index and $21,852 in the Lipper Capital Appreciation Funds.
<PAGE> 2
Explanation of Quarterly Performance: The Movers and the Shakers
Translation: Our technology and retail stocks carried the day.
Our December quarter performance was helped tremendously by our increased focus
on technology stocks, which represented a higher than normal 38% of assets on
December 31. Our retail stocks (19% of net assets) also roared ahead in the
quarter. Eight of our stocks gained 50% or more during the quarter:
<TABLE>
<CAPTION>
Rank Description Industry % Change
---------------- -------- --------
<S> <C> <C>
America Online Inc. Data Processing-services 177.9%
Children's Place Stores, Inc. Retail Stores 151.3%
Pegasus Systems, Inc. Services 133.2%
Neomagic Corp. Data Processing-hardware 92.4%
Power Integrations, Inc. Electronic/Electric 85.8%
Gap, Inc. Retail Stores 59.6%
Ansys Inc. Data Processing-software 51.7%
Cisco Systems Inc. Data Processing-hardware 50.2%
</TABLE>
America Online, a small position when we bought it May, now is our sixth largest
holding, all due to appreciation. Pegasus Systems, the premier on-line
reservation systems for hotels, and Cisco, a networking solutions firm, also
caught the Internet "wave" of the last quarter. Different models found each of
these three stocks; there was no conscious decision to buy Internet-related
companies.
None of our stocks declined as much as 50% in the quarter. PTI Holdings was the
worst, down 43%. This manufacturer of bicycle helmets and accessories has done a
much better job of growing revenues than either earnings or earnings per share.
Wall Street is apparently tired of waiting for the "bottom line" to catch up.
Top Ten Holdings
Our top ten holdings at the end of December were:
<TABLE>
<CAPTION>
Rank Description Industry % Net Assets
----------------- -------- ------------
<S> <C> <C>
Neomagic Corp Data Processing-Hardware 5.4%
Best Buy Retail Stores 5.3%
Children's Place Retail Stores Retail Stores 4.4%
Pegasus Systems Services 3.7%
Funco Inc. Leisure-Amusement 3.4%
America Online Internet 3.4%
SCP Pool Corp Leisure-Amusement 3.4%
Tandy Brands Accessories Leather and Shoes 3.1%
Ardent Software Inc. Data Proc.--Software & Services 3.0%
Ansys Inc Data Proc.--Software & Services 3.0%
----
Total 37.9%
</TABLE>
These positions indicate our portfolio is slightly less concentrated than
normally. Usually, our largest position is closer to 10% of net assets.
-2-
<PAGE> 3
Disclaimer
The following is a reminder from the friendly folks at your fund who
worry about liability. The views expressed here are exclusively those of Fund
management. They are not meant as investment advice. Any favorable (or
unfavorable) description of a holding applies only as of the quarter end,
December 31, 1998; security positions can and do change thereafter.
Myth and Fact
Translation: Recent market performance demonstrates the risk of trying to "time
the market." At Bridgeway, we subscribe to the philosophy that time in the
market is better than timing the market. (I don't know who first said this; if
you know, please write me a card.)
By now you are probably familiar with Bridgeway's "buy and hold" philosophy of
owning stocks for the long term and with our disdain for trying to time the
market. The following quote (I'll call it "the myth") nearly turned my stomach
when I read it in an advertisement for one of the most popular financial
Internet sites:
With the market's recent schizophrenia - swooning one month, soaring
the next - it's become more crucial for investors to be able to stay on
top of events and use the fluctuations to their advantage.
Presumably by using this service you could bail out before the market fell, and
invest again at the bottom.
Fact: Most funds experience a high level of redemptions in a market downturn.
(Interestingly, we didn't experience this in 1998.) Shareholders who did bail
out in October missed some of the best performing weeks at the end of the year.
Academic and industry research indicate that this is not an isolated phenomenon.
A significant majority of people who time the market end up with inferior
returns. Wilshire Associates studied the gap between portfolio returns and
shareholder returns from January 1984 through August 1994 and found that
investors' returns were 1.1% less than the average 11.0% return of their funds.
I believe a significant part of this underperformance is due to investors' fear
and reaction to short-term news stories.
The Year 2000 Computer Problem
Translation: Some computers and software (especially older versions) will not
function properly next year because of problems in reading years beginning with
"2000." At Bridgeway, we believe that our systems have very limited exposure and
are operationally ready. However, we have taken action to safeguard our
operations. In addition, we do not plan to sell portfolio companies as we try to
anticipate their readiness for the year 2000.
As January 1 of 2000 approaches, you will hear more and more stories of the
"Y2K" or year two thousand problem. Many companies are spending tremendous
amounts to correct software which reads only two digits for date fields ("99"
instead of "1999"); this can cause serious problems and software failure. Some
shareholders have asked what Bridgeway is doing about it.
We believe our own computers and software are year 2000 "compliant." There are
some advantages in being a smaller and somewhat younger firm. The network of
personal computers we rely on use major brand name components that are also
compliant. We have no mainframes or older hardware, which are more difficult to
convert to year 2000 capability. We have completed testing of our primary
software, all of which is compliant, and we will conduct final tests in March.
The Securities and Exchange Commission requires regulated investment advisors to
have a Y2K plan. An SEC representative conducted an on-site interview in October
to assess our readiness. (They don't give you a grade or make any representation
about readiness, however.) Bridgeway also has a contingency plan. We had the
opportunity in 1998 to (successfully) price our portfolio off-site on an
"emergency" basis. We have contacted all of our vendors and brokers concerning
their compliance, and I am impressed with the efforts made by these companies.
-3-
<PAGE> 4
After studying their plans, I am only concerned about one vendor that supplies
the closing prices of our securities. However, we have several alternative
sources, so I am not worried.
I believe that the two areas of greatest exposure to the Y2K problem are the
phone company and the electric company. Obviously, we are too small to have an
impact on their readiness, but we don't feel it would be a catastrophe even if
Bridgeway were without these utilities for a couple of weeks. We are considering
obtaining a backup source of electricity. Quite frankly, if there are problems
at Bridgeway, it is likely that you will have more important and immediate
problems in other parts of your life. I don't anticipate major problems in early
January 2000, but I am taking the issue very seriously.
The other side of the equation is the companies we own. Should we anticipate a
major market correction? For reasons similar to our disdain of timing the
market, we will not try to time the market impact of the Y2K problem. We plan to
"ride it out," whether it is large or small. It would be too easy to sell now
and miss a great 1999, or sell after prices already reflect the problem.
Conclusion
As always, I appreciate your feedback. We keep a bulletin board of shareholder
comments and suggestions which we review at our weekly staff meeting. We take
them very seriously. I hope you are pleased with our recent quarter performance,
if not with our performance for the full year. Please keep your ideas coming.
Sincerely,
/s/ JOHN MONTGOMERY
John Montgomery
-4-
<PAGE> 5
BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS (unaudited)
Showing percentage of total net assets
December 31, 1998
<TABLE>
<CAPTION>
Industry Company Shares Value
-------- ------- ------ -----
<S> <C> <C>
Common Stock - 98.0%
Air Transport - 1.6%
Amtran, Inc. * 6,700 $ 181,738
Aluminum & Products - 1.1%
Invision Technologies, Inc.* 21,000 129,938
Beverages - 0.4%
Lion Brewery, Inc. * 9,000 40,500
Broadcasting - 1.4%
Triathalon Broadcasting Co.* 14,300 160,875
Containers - 0.2%
Disc Graphics, Inc. * 4,800 21,300
Data Processing - Hardware - 10.4%
Bell Microproducts, Inc. * 1,400 12,950
Cisco Systems, Inc. * 1,500 139,219
Dell Computer Corp. * 2,440 178,578
Microframe, Inc. * 14,700 41,344
Neomagic Corp. * 27,500 608,438
Printronix, Inc. * 13,500 194,063
----------
1,174,592
Data Processing - Software & Services - 19.7%
ANSYS Incorporated * 30,300 333,300
ARDENT Software, Inc. * 14,500 333,500
America Online, Inc. * 2,600 379,600
Brightstar Info Tech * 12,000 94,500
Concord EFS * 4,000 169,500
EMC Corp. * 1,700 144,500
Information Advantage Software * 27,000 204,188
Networks Associates * 2,400 159,000
Object Design Inc. * 4,800 31,800
SEEC Inc. * 20,000 128,750
Yahoo! Inc. * 1,035 243,290
----------
2,221,928
Drugs-Generic and OTC - 2.3%
Medco Research, Inc. * 6,300 163,800
Warner Lambert 1,300 97,744
----------
261,544
Electronics/Electric - 7.7%
Intervoice, Inc. * 4,000 138,000
Lexmark International Group* 1,600 160,800
PSC Inc * 8,500 80,750
Power Integrations, Inc. * 5,300 132,831
Richey Electronics, Inc. * 4,650 47,953
Sanmina Corp. * 2,400 150,000
Vitesse Semiconductors * 3,500 159,688
----------
870,022
Finance - 1.1%
Pilgrim America Capital Corp* 5,000 125,000
<S> <C> <C>
Food - 0.3%
Zapata Corp. 2,800 $ 34,300
Graphic Arts - 0.5%
Baldwin Technology
Company, Inc. * 10,600 59,625
Home Furnishings - 2.7%
Winsloew Furniture, Inc. * 11,400 302,100
Jewelry, Silverware, Watches - 1.5%
Jan Bell Marketing, Inc. * 25,500 164,156
Leather & Shoes - 3.1%
Tandy Brands Accessories, Inc.* 20,590 344,883
Leisure-Amusement - 6.7%
Funco Inc. * 21,700 379,750
SCP Pool Corp * 25,026 378,518
----------
758,268
Machinery - 0.4%
Daniel Industries * 4,390 51,308
Medical Equipment/Supplies - 5.9%
Arterial Vascular Engineering* 3,625 190,313
ICU Medical, Inc. * 14,000 308,000
Minimed Inc * 1,555 162,886
----------
661,199
Mutual Funds - 0.5%
New Germany Fund, Inc. 4,729 61,181
Oil & Gas - 0.5%
Parker Drilling * 7,500 23,906
R&B Falcon Corp * 3,720 28,365
----------
52,271
Retail Stores - 19.3%
American Eagle Outfitters * 2,055 136,914
Ann Taylor Stores * 3,500 138,031
Best Buy Company, Inc. * 9,800 601,475
Children's Place Retail
Stores, Inc. * 19,636 493,355
Creative Computers, Inc. * 8,700 276,225
Ezcorp, Inc. 14,600 122,275
Gap, Inc. 3,300 185,625
Just For Feet * 5,600 97,300
Staples * 2,800 122,325
----------
2,173,525
Services - 6.5%
American Physician Partners* 14,000 88,375
Eco Soil Systems, Inc. * 7,500 65,625
Innotrac Corp. * 8,500 154,063
Pegasus Systems * 11,700 421,200
----------
729,263
</TABLE>
-5-
<PAGE> 6
BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS (unaudited), continued
Showing percentage of total net assets
December 31, 1998
<TABLE>
<CAPTION>
Industry Company Shares Value
-------- ------- ------ -----
<S> <C> <C>
Telecommunications - 1.6%
Nokia Corporation ADR "A" * 1,500 $ 180,656
Transportation/Freight - 1.7%
Hvide Marine, Inc. * 16,000 80,000
Landair Services Inc. * 6,000 112,500
-----------
192,500
USA Truck, Inc. * 8,900 103,463
-----------
Total Common Stock
(Identified Cost $8,650,424) $11,056,135
===========
</TABLE>
<TABLE>
<CAPTION>
Industry Company Shares Value
-------- ------- ------ -----
<S> <C> <C>
Total Investments - 98.0%
(Cost $8,650,424) $11,056,135
Other Assets and Liabilities, net - 2.0% 219,909
-----------
Total Net Assets - 100.0% $11,276,044
===========
</TABLE>
* Non-income producing security as no dividends were paid during the period from
July 1, 1998 to December 31, 1998.
** The aggregate identified cost on a tax basis is $8,650,424. Gross unrealized
appreciation and depreciation were $2,553,973 and $148,262, respectively, or net
realized appreciation of $2,405,711.
-6-
<PAGE> 7
BRIDGEWAY FUND, INC. - AGGRESSIVE GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
As of December 31, 1998
<TABLE>
<S> <C>
Assets:
Investments at value (cost - $8,650,424) $ 11,056,135
Cash 144,766
Receivable for investments sold 123,809
Receivable for interest 156
Prepaid expenses 3,917
Deferred organization costs 2,378
--------------
Total assets 11,331,161
--------------
Liabilities:
Payable for investments purchased 29,219
Payable for management fee 1,554
Accrued expenses 24,344
--------------
Total liabilities 55,117
--------------
Net assets ( 543,709 shares outstanding) $ 11,276,044
==============
Net asset value, offering and redemption price per share ($11,276,044/543,709) $ 20.74
==============
Net assets represent:
Paid-in capital $ 9,711,199
Net realized loss on investments (840,866)
Net unrealized appreciation of investments 2,405,711
--------------
Net assets $ 11,276,044
==============
</TABLE>
BRIDGEWAY FUND, INC. - AGGRESSIVE GROWTH PORTFOLIO
STATEMENT OF OPERATIONS (Unaudited)
For the six months ended December 31, 1998
<TABLE>
<S> <C>
Investment income:
Dividends $ 8,071
Interest 9,440
--------------
Total income 17,511
Expenses:
Management fees 6,124
Accounting fees 24,702
Audit fees 2,622
Custody 1,428
Amortization of organization costs 2,326
Insurance 517
Legal 1,226
Registration fees 6,040
Directors' fees 617
Miscellaneous 155
--------------
Total expenses 45,757
--------------
Net investment loss (28,246)
--------------
Net realized and unrealized gain on investments:
Net realized loss on investments (881,752)
Net realized loss on options (77,067)
Net change in unrealized appreciation 1,692,141
--------------
Net realized and unrealized gain 733,322
--------------
Net increase in assets resulting from operations $ 705,076
==============
</TABLE>
See accompanying notes to financial statements.
-7-
<PAGE> 8
BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS (Unaudited)
<TABLE>
<CAPTION>
Six months ended Year ended
Increase (decrease) in net assets: December 31, 1998 June 30, 1998
<S> <C> <C>
Operations:
Net investment loss $ (28,246) $ (80,860)
Net realized gain(loss) on investments (881,752) 584,511
Net realized loss on options (77,067) (27,950)
Net change in unrealized appreciation 1,692,141 213,313
------------ ------------
Net increase resulting from operations 705,076 689,014
------------ ------------
Distributions to shareholders:
From net investment income 0 0
From realized gains on investments (196,181) (455,880)
------------ ------------
Total distributions to shareholders (196,181) (455,880)
Fund share transactions:
Proceeds from sale of shares 4,948,662 6,076,613
Reinvestment of dividends 195,556 451,952
Cost of shares redeemed (1,228,689) (3,330,369)
------------ ------------
Net increase from Fund share transactions 3,915,529 3,198,196
------------ ------------
Net increase in net assets 4,424,424 3,431,330
Net assets:
Beginning of period 6,851,820 3,420,490
------------ ------------
End of period $ 11,276,244 $ 6,851,820
============ ============
Number of Fund shares:
Sold 262,575 293,674
Issued on dividends reinvested 13,628 25,433
Redeemed (69,640) (163,996)
------------ ------------
Net increase 206,563 155,111
Outstanding at beginning of period 337,146 182,035
------------ ------------
Outstanding at end of period 543,709 337,146
------------ ------------
</TABLE>
See accompanying notes to financial statements
-8-
<PAGE> 9
BRIDGEWAY FUND, INC. - AGGRESSIVE GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS (Unaudited)
(for a share outstanding throughout the period)
<TABLE>
<CAPTION>
Six
months ended Year ended Year ended Year ended 8/5/94* to
December 31, June 30, June 30, June 30, June 30,
1998 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Per share data
Net asset value, beginning of period $ 20.32 $ 18.79 $ 16.66 $ 11.71 $ 9.89
----------- ---------- ---------- ---------- --------
Income (loss) from investment operations:
Net investment loss (0.08) (0.30) (0.24) (0.18) (0.02)
Net realized and unrealized gain 1.10 3.46 3.43 5.22 1.84
----------- ---------- ---------- ---------- --------
Total from investment operations 1.02 3.16 3.19 5.04 1.82
---------- ------------ ----------- ----------- - ---------
Less distributions to shareholders:
Net investment income 0.00 0.00 0.00 0.00 0.00
Net realized gains (0.60) (1.63) (1.06) (0.09) 0.00
----------- ---------- ---------- ---------- --------
Total distributions (0.60) (1.63) (1.06) (0.09) 0.00
----------- ---------- ---------- ---------- --------
Net asset value, end of period $ 20.74 $ 20.32 $ 18.79 $ 16.66 $ 11.71
=========== ========== ========== ========== ========
Total return [1] 6.3% 18.1% 19.9% 43.3% 19.5%
Ratios & Supplemental Data
Net assets, end of period $11,276,044 $6,851,820 $3,420,490 $1,502,485 $276,272
Ratios to average net assets: [2]
Expenses after waivers and reimbursements 1.49% 2.00% 2.00% 1.97% 1.86%
Expenses before waivers and reimbursements 1.49% 2.00% 2.77% 5.73% 16.15%
Net investment loss after waivers and reimbursements (0.92%) (1.50%) (1.40%) (1.26%) (0.30%)
Portfolio turnover rate [2] 164.2% 132.3% 138.9% 167.7% 139.9%
</TABLE>
[1] Not annualized for periods less than a year.
[2] Annualized for periods less than a year.
* August 5, 1994 was commencement of operations.
See accompanying notes to financial statements.
-9-
<PAGE> 10
BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. Organization:
Bridgeway Fund, Inc. (the "Fund") was organized as a Maryland corporation
on October 19, 1993, and is registered under the Investment Company Act
of 1940, as amended, as a no-load, diversified, open-end management
investment company.
The Fund is organized as a series fund and has six portfolios. The Fund
commenced operations as a regulated investment company on August 5, 1994
with the Ultra-Small Company Portfolio, the Aggressive Growth Portfolio
and the Social Responsibility Portfolio. On July 20, 1997, the Fund added
two portfolios: the Ultra-Small Index Portfolio and the Ultra-Large 35
Index Portfolio. On June 5, 1998, the Fund added the Micro-Cap Limited
Portfolio. The Fund is authorized to issue 1,000,000,000 shares.
Bridgeway Capital Management, Inc. is the Adviser to the Fund.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.
Securities Valuation
Securities are valued at the closing price for securities traded on a
principal U.S. securities exchange and on NASDAQ. Listed securities for
which no sales are reported are valued at the latest bid price in
accordance with the pricing policy established by the Fund's Board of
Directors. When current bid prices are not available, the most recently
available quoted closing or bid price is used and adjusted for changes in
the index on the exchange on which that security trades, also in
accordance with the pricing policy established by the Fund's Board of
Directors.
Federal Income Taxes
It is the Fund's policy to comply with the requirements of Subchapter M
of the Internal Revenue Code applicable to regulated investment
companies, including the timely distribution of all its taxable income to
its shareholders. Therefore, no federal income tax provision has been
recorded.
Deferred Organization Costs
Deferred organization costs are amortized on a straight-line basis over
five years. The initial shareholders, prior to the prospectus being
declared effective on June 30, 1994, have agreed that if any of the
initial shares of each portfolio are redeemed during such amortization
period by any holder thereof, the redemption proceeds will be reduced by
the amount of the then unamortized organization expenses in the same
ratio as the number of shares redeemed bears to the number of total
outstanding shares at the time of redemption.
Distributions to Shareholders
Distributions to shareholders are recorded when declared. The amount and
character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles.
-10-
<PAGE> 11
BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited), Continued
2. Significant Accounting Policies
Distributions to Shareholders, Continued
Use of Estimates in Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, as well as the reported amounts of income and
expenses during the reporting period. Actual results could differ from
those estimates.
Risks and Uncertainties
The Fund provides for various investment options including stocks, call
and put options. Such investments are exposed to various risks, such as
interest rate, market and credit. Due to the risks involved, it is at
least reasonably possible that changes in risks in the near term would
materially affect shareholders' account values and the amounts reported
in the financial statements and financial highlights. (See prospectus for
additional risk information.)
12b-1 Plan
The Fund acts as distributor of its shares pursuant to a 12b-1 plan
adopted by shareholders on October 15, 1996. The cost of distributing
shares of the Fund is borne by the Adviser at no cost to the Fund; thus,
there is no "12b-1 fee."
Other
Security transactions are accounted for as of the trade date, the date
the order to buy or sell is executed. Realized gains and losses are
computed on the identified cost basis. Dividend income is recorded on the
ex-dividend date, and interest income is recorded on the accrual basis.
3. Use of Derivative Instruments:
The Aggressive Growth Portfolio may use derivative securities such as
futures, stock options and index options. (See Prospectus for additional
information.) Buying calls increases a Portfolio's exposure to the
underlying security. Buying puts on a stock market index tends to limit a
Portfolio's exposure to a stock market decline. All options purchased by
the Fund were listed on exchanges and considered liquid positions with
readily available market quotes. A summary of transactions in options by
the Aggressive Growth Portfolio follows:
<TABLE>
<CAPTION>
Call Options Put Options
-------------------------- --------------------------
Number Cost Number Cost
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Outstanding June 30, 1998 206 $ 94,431 0 $ --
Purchased 35 48,093 25 30,246
Expired (120) (62,030) (25) (30,246)
Exercised 0 -- 0 --
Closed (121) (80,494) 0 --
---------- ---------- ---------- ----------
Outstanding December 31, 1998 0 $ -- 0 $ --
========== ========== ========== ==========
</TABLE>
-11-
<PAGE> 12
BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited), Continued
4. Management Contract:
The Fund has entered into a management contract with Bridgeway Capital
Management, Inc. (the Adviser"), a shareholder of the Fund. As
compensation for the advisory services rendered, facilities furnished,
and expenses borne by Bridgeway Capital Management, Inc., the portfolio
pays Bridgeway Capital Management, Inc. a fee, computed and paid monthly
based on the average daily net assets of the portfolio for the month.
Such fee is based on the following annual rates: 0.90% of the first $250
million of the portfolio's average daily net assets, 0.875% of the next
$250 million and 0.85% of any excess over $500 million.
The fee is adjusted quarterly for based upon performance. The performance
adjustment rate varies with the Fund's performance as compared to the
performance of the Standard & Poor's 500 Composite Stock Price Index with
dividends reinvested (hereinafter "Index" ) and ranges from -.7% to +.7%.
The performance rate adjustment is calculated at 4.67% of the difference
between the performance of the Fund and that of the Index over the
trailing five year period, except that there is no performance adjustment
if the difference between the Fund performance and the Index performance
is less than or equal to 2%.
5. Related Party Transactions:
One director of the Fund, John Montgomery, is an owner and director of
the Adviser. Under the Investment Company Act of 1940 definitions, he is
considered to be "affiliated" and "interested." Compensation of Mr.
Montgomery is borne by the Adviser rather than the Fund. The other
officers of the Fund are employees of the Adviser and the portion of
their compensation attributable to fund accounting, shareholder
accounting and state registration services is paid by the Fund and is
included in the Accounting fees expense category of the financial
statements. All amounts paid for shareholder accounting are paid to the
Adviser.
6. Custodial Agreement:
The Fund has entered into a Custodial Agreement with Compass Bank. As
compensation for services rendered by the custodian, each portfolio pays
a fee, computed and paid quarterly based on the average month end total
assets of each portfolio for the quarter plus a fee per transaction.
7. Cost, Purchases and Sales of Investment Securities:
Investments have the same cost for tax and financial statement purposes.
Aggregate purchases and sales of investment securities, other than cash
equivalents were $8,616,509 and $5,120,100, respectively, for the six
months ended December 31, 1998.
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