BRIDGEWAY FUND INC, 485APOS, 1999-09-02

BRIDGEWAY FUND INC
485APOS, 1999-09-02

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<PAGE> 1
File No. 33-72416
As filed with the Securities and Exchange Commission on
August 27, 1999
================================================================================

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. 10
and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 10

BRIDGEWAY FUND, INC.
--------------------
(Exact name of Registrant as Specified in Charter)

5615 Kirby Drive, Suite 518, Houston, Texas 77005-2448
(Address of Principal Executive Office)

(713) 661-3500
--------------
(Registrant's Telephone Number, Including Area Code)

JOHN N.R. MONTGOMERY, PRESIDENT
Bridgeway Capital Management, Inc.
5615 Kirby Drive, Suite 518, Houston, Texas 77005-2448
(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] on October 31, 1999 pursuant to paragraph (b)

If appropriate, check the following box: [ ] This post-effective amendment
designates a new effective date for a previously filed PEA.
================================================================================
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.
<PAGE> 2

BRIDGEWAY FUND, INC.

Registration Statement on Form N-1A

Cross Reference Sheet
Pursuant to Rule 481(a)

<TABLE>
<CAPTION>
Item No. Prospectus Heading
<S> <C>
1. Cover Page Cover Page

2. Synopsis Introduction

3. Condensed Financial Statements Financial Highlights

4. General Description of Registrant The Fund and Its Portfolios

5. Management of the Fund Management of the Fund

6. Capital Stock and Other Securities Investment Strategy
Dividends, Distributions and Taxes

7. Purchase of Securities Being Offered How to Purchase Shares, Net Asset
Value or NAV (Share Price)

8. Redemption or Repurchase How to Redeem Shares

9. Pending Legal Proceedings Not Applicable

Statement of Additional
Information Heading

10. Cover Page Cover Page

11. Table of Contents Cover Page

12. General Information and History General Information
</TABLE>
<PAGE> 3
Part A
Prospectus

<PAGE> 4

BRIDGEWAY FUND,
INC.

A fully no-load mutual fund family of domestic stock market portfolios

ULTRA-SMALL COMPANY (CLOSED)

ULTRA-SMALL INDEX

MICRO-CAP LIMITED

AGGRESSIVE GROWTH

SOCIAL RESPONSIBILITY

ULTRA-LARGE 35 INDEX

PROSPECTUS
OCTOBER 31, 1999

This prospectus presents concise information about Bridgeway that you
should know before investing. Please keep it for future reference. Text in
shaded "translation" boxes is intended to help the reader understand or
interpret other information presented nearby. Pages 5-57 describe each Portfolio
separately for your convenience; pages 2-4 and 58-63 give general information
about the Fund.

[BRIDGEWAY LOGO]

<PAGE> 5

The Securities and Exchange Commission does not say whether any mutual
fund is a good or bad investment or whether any prospectus is accurate or
complete. Anyone who claims otherwise is breaking the law.

TABLE OF CONTENTS

<TABLE>
<S> <C>
The Fund and its Portfolios 2
Their Investment Objectives 2
Risk Information 3
Investment Techniques 4
Ultra-Small Company Portfolio 5
Ultra-Small Index Portfolio 14
Micro-Cap Limited Portfolio 25
Aggressive Growth Portfolio 33
Social Responsibility Portfolio 41
Ultra-Large 35 Index Portfolio 49
Management of the Fund 58
Code of Ethics 58
Net Asset Values (Share Prices) 59
Distribution of Fund Shares 60
How to Purchase Shares 60
Tax Sheltered Retirement Plans 61
How to Redeem Shares 61
Dividends, Distributions & Taxes 62
Tax Efficiency 63
</TABLE>

PROSPECTUS OCTOBER 31, 1999

BRIDGEWAY
FUND, INC.

THE FUND AND ITS PORTFOLIOS

Bridgeway Fund Inc. ("the Fund") is a fully no-load mutual fund comprised
of six Portfolios: Ultra-Small Company Portfolio, Ultra-Small Index Portfolio,
Micro-Cap Limited Portfolio, Aggressive Growth Portfolio, Social Responsibility
Portfolio, and Ultra-Large 35 Index Portfolio.

THEIR INVESTMENT OBJECTIVE

The investment objective of all of the Portfolios is to provide total
return, capital appreciation plus current income, with the primary emphasis on
capital appreciation. Detailed investment strategies appear in the section for
each Portfolio. The Fund's Board of Directors oversees the management of the
Fund and may change the investment strategies. However, the Board will not
change a Portfolio's stated size limitations or closing commitments without a
vote of shareholders.

All six Portfolios:

o are designed for investors with long-term goals in mind. The Fund
strongly discourages short-term trading of its shares.

o offer you the opportunity to participate in financial markets through
stock portfolios professionally managed by Bridgeway Capital Management.

o offer you the opportunity to diversify investments.

o carry certain risks, including the risk that you can lose money if fund
shares, when redeemed, are worth less than the purchase price.

o are not bank deposits and are not guaranteed or insured.

2
<PAGE> 6

RISK INFORMATION

This prospectus discusses the principal risks of investing in each of the
Fund's portfolios. These and other risks are discussed both in the prospectus
section for each Portfolio (see Table of Contents) and in more detail in the
Fund's Statement of Additional Information (see back cover).

TRANSLATION

What is Risk?

While many people have an intuitive understanding of total return (the
percentage amount an investment goes up or down, including dividends), there is
no single measure of risk. One measure of risk is volatility, or how much of a
"roller coaster ride" one experiences over the life of an investment. Higher
volatility investments expose short-term investors to a greater liklihood of
investment loss. These investors may "cash in" (redeem) an investment when the
price is down, missing a subsequent recovery.

Any mutual fund that invests primarily in stocks is subject to
considerable volatility related to stock market movements. For this reason,
stock market related investments, including the Bridgeway Portfolios, are
inappropriate for short-term investors. A short-term investor is anyone who may
need to "cash in" their investment, for example to cover expenses, within the
next few years.

The following graph presents the worst one-quarter downturn and the best one
quarter appreciation for each Bridgeway Portfolio and for certain market
benchmarks. A market benchmark is generally a published index, investment
category, or group of funds that provides a standard of comparison. The graph
illustrates the historical relative short-term risk of each Portfolio. Of
course, future results will vary from past ones, and we would expect each
portfolio and benchmark to experience a more severe decline in some future
period.

SHORT-TERM RISK (BEST AND WORST QUARTERS)

[BAR CHART]

3
<PAGE> 7

TRANSLATION

The primary risk of each Bridgeway portfolio has been the effect of a
stock market decline. The stock holdings in the portfolios reflect the volatile
nature of the stock market itself. However, investors should be aware that other
potential risks exist in the investment techniques of the portfolios, notably
Aggressive Growth. (See the table below.) Discussions of the risks associated
with these methods are included in the following sections on each portfolio and
in the Statement of Additional Information.

SUMMARY OF INVESTMENT TECHNIQUES USED:

<TABLE>
<CAPTION>
ULTRA- ULTRA- MICRO- ULTRA-
SMALL SMALL CAP AGGRESSIVE SOCIAL LARGE
COMPANY INDEX LIMITED GROWTH RESPONSIBILITY 35 INDEX
------- ----- ------- ---------- -------------- --------
<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/ADRs 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 Index Portfolio will only borrow on a temporary basis for
the purpose of selling short "against the box."

4
<PAGE> 8

THE ULTRA-SMALL COMPANY PORTFOLIO

INVESTMENT OBJECTIVE: To provide a long-term total return of capital,
primarily through capital appreciation.

INVESTMENT STRATEGY: The Ultra-Small Company Portfolio invests in a
diversified portfolio of common stocks of ultra-small companies. "Ultra-small
companies" have a market capitalization the size of the smallest 10% of
companies listed on the New York Stock Exchange. On June 30, 1999, this group
included stocks with a market capitalization of less than $89 million. The
majority of stocks in this Portfolio are listed on NASDAQ rather than the New
York Stock Exchange. The advisor selects stocks for the Portfolio according to
proprietary quantitative models that span various investment styles, including
both "growth" and "value", but the overall portfolio has a strong value bias.
Value stocks are those priced cheaply relative to some financial measures of
worth. Growth stocks have faster increasing sales and earnings. The advisor may
invest up to 10% of assets in foreign ultra-small stocks that are listed on
American exchanges.

SPECIAL RISK FACTORS: The market price of ultra-small company shares
typically exhibit much greater volatility than large company shares and
significantly greater volatility than small-company shares. Bridgeway Capital
Management believes that 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 a longer term of 25
years and more, they have also had commensurably higher volatility. Therefore,
shareholders of this portfolio are exposed to higher short-term risk.

Ultra-small companies normally:

o have limited resources for expanding or surviving in a newly competitive
environment,

o may lack depth of management,

o may have a limited product line,

o may lack market "muscle,"

o and may be more sensitive to economic downturns than companies with large
capitalizations.

TRANSLATION

What are Ultra-Small Companies?

Compared to the size companies in which most other mutual funds invest,
ultra-small companies are spectacularly small. They are smaller than micro-cap
and exhibit greater short-term risk. Companies this size typically have 20 to
1000 employees, produce revenues of $10 to $500 million annually, and may be
known for just one product or service. A higher percentage of companies this
size go out of business each year, but a higher percentage also double in size.

5
<PAGE> 9

WHO SHOULD INVEST: This Portfolio is closed to new investors. For current
shareholders, the Adviser believes that this Portfolio is appropriate as a
long-term investment (at least 5 years, but ideally 10 years or more) for
shareholders who can accommodate very high short-term price volatility, or as a
diversifier for a portfolio consisting primarily of large stocks. IT IS NOT AN
APPROPRIATE INVESTMENT FOR SHORT-TERM INVESTORS, THOSE TRYING TO TIME THE
MARKET, OR THOSE WHO WOULD PANIC DURING A MAJOR MARKET OR PORTFOLIO CORRECTION.
(See "Frequent Trading of Fund Shares" on page 61).

TRANSLATION

If Short-Term Risk is So High, Why Would Anyone Want to Invest?

While ultra-small stocks expose investors to extreme short-term price
swings, historically they have compensated investors for this additional risk
with higher than average returns in the long term. This does not happen over
every period, however. Indeed, from 1994 through 1998, ultra-small companies
significantly underperformed large companies. The characteristics of ultra-small
companies that render them more risky also have an "upside" that makes them more
attractive during periods of small company performance. For example, although
they may lack depth in management, they may be less bureaucratic. They may fall
farther in a market downturn, but may "bounce back" faster. They may be more
maneuverable in the marketplace, may respond quicker to changing market forces,
and may see a successful product add more to "the bottom line" in percentage
terms. Historically, the higher long-term return of ultra-small companies has
shielded investors from potentially devastating effects of inflation better than
most kinds of investments. U.S. Treasury bills, for example, lost 41% of their
purchase power to the effects of inflation from 1940 to 1950. Of course, future
results may vary from historical ones.

PORTFOLIO CLOSING COMMITMENT: The Portfolio is closed to new investors and will
remain closed as long as net assets exceed $27.5 million. The Board of Directors
has targeted closing the Portfolio to current investors when net assets reach
roughly $40 million or at the end of the Fund's fiscal year.

TRANSLATION

Why is Closing at a Small Level of Assets So Important?

Bridgeway closed the Ultra-Small Company Portfolio to new investors at
half the net asset level of any other mutual fund closing. In order to invest
actively in ultra-small companies, a fund must itself be very small. If a large
fund invested 1% of its assets in an ultra-small company, it could own the whole
company. By keeping its own costs low, Bridgeway is able to offer a unique
portfolio and stay more "nimble" in the marketplace. Most small-cap funds with
good performance records get flooded with too much cash, and performance
thereafter suffers. On 8/5/99, Ultra-Small Company Portfolio became the only
fund with a median market capitalization of less than $170 million to beat the
market index of similar size companies over the last five years.

6
<PAGE> 10

PERFORMANCE: The bar chart below shows how the Portfolio's performance
has varied from one year to another. The table below the chart shows the return
by averaging actual performance over various lengths of time. This information
is based on past performance. It is not a prediction of future results.

YEAR BY YEAR % RETURNS AS OF 12/31 OF EACH YEAR

<TABLE>
<CAPTION>
1994(1) 1995 1996 1997 1998 1999(2)
------- ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Ultra-Small Company -2.75% 39.84% 29.74% 38.00% -13.11% 1.43%
CRSP 10 Index -0.79% 30.29% 16.86% 22.03% -10.79% 13.05%
</TABLE>

AVERAGE ANNUAL TOTAL % RETURNS AS OF 6/30/99

<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------
FUND/INDEX 1 YEAR 3 YEAR SINCE INCEPTION (8/5/94)
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bridgeway Ultra-Small Company -14.57% 8.46% 16.85%

CRSP Cap-based Portfolio 10 Index (1) -4.15% 6.59% 13.48%
- - --------------------------------------------------------------------------------------------------
</TABLE>

(1) The CRSP Cap-Based Portfolio 10 Index is an unmanaged index of 2,409
ultra-small companies compiled by the Center for Research in Security
Prices, with dividends reinvested. Past performance does not guarantee
future results.

TRANSLATION

After a slow start in 1994, the Ultra-Small Company Portfolio led the
CRSP Index of ultra-small companies by wide margins in 1995, 1996 and 1997. It
was also the only small-cap fund to beat the S&P 500 Index of large companies in
each of those years. In 1998-1999, the Portfolio suffered a major decline,
somewhat more than ultra-small stocks overall. The Portfolio's focus on very
small companies, especially those with a "value" orientation, worked strongly
against it. Detailed performance explanations are included in quarterly reports
to shareholders. (See the back cover.)

7
<PAGE> 11

FEES AND EXPENSES: Bridgeway Fund is fully no-load; it does not charge
any fees for maintaining your account or for buying, selling, or exchanging your
shares. Your only cost is your share of annual operating expenses. The following
fee table and expense example can help you compare costs among funds.

ULTRA-SMALL COMPANY PORTFOLIO FEE TABLE

<TABLE>
<S> <C>
SHAREHOLDER FEES (LOADS)
Sales Charge (Load) Imposed on Purchases None
Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None

ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 1.2%
Distribution (12b-1) Fees None
Other Expenses 0.8%
----
Total Operating Expenses 2.0%
</TABLE>

* The figures in the table are based on the 6/30/99 fiscal year. Actual expenses
for fiscal year 6/30/00 will be the same or lower.

ULTRA-SMALL COMPANY PORTFOLIO EXPENSE EXAMPLE

<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expenses $200 $631 $1,105 $2,516
- - --------------------------------------------------------------------------------
</TABLE>

The example above presents cumulative cost of Portfolio ownership. It
assumes that you invested $10,000 for the periods shown, that you earned a
hypothetical 5% total return each year, and that the Portfolio's expenses were
those listed in the table above. Your costs would be the same whether you sold
your shares or continued to hold them at the end of each period. Actual
performance and expenses may be higher or lower.

TRANSLATION

Are There "Hidden Fees"?

Inside the Fund? Yes. In addition to the operating expenses above, the
Portfolio pays commission costs to brokerage firms to buy and sell Portfolio
stocks. Last year, these costs represented 0.17% of average net assets, or $17
for a $10,000 investment. This is less than many other actively managed funds.
We wish we could add this information to the table above, but it would go
against both generally accepted accounting rules and industry practice. We
choose to disclose it here.

Outside the Fund? Maybe. The "Translation" on the opposite page explains
the management fee and operating expense borne by Portfolio investors. In
addition, investors may pay transaction fees to some, though not all, "fund
marketplaces" where they purchase shares. Please see "How to Purchase Shares" on
page 60 or call Bridgeway at 800-661-3550 for details.

<PAGE> 12

TRANSLATION

What are the Costs of Fund Ownership?

Bridgeway Fund is fully no-load; there are no sales charges to buy or
sell shares. The Adviser (not the shareholder) pays all the costs associated
with distributing the Fund to new shareholders. The Fund keeps these costs to a
minimum by essentially doing no advertising.

All fees paid to the Adviser are included in the management fee. For
example, a 0.9% annual fee means that a shareholder with an average $10,000
account pays $90 each year. The management fee is a maximum 1.49% annually when
net assets are between $27.5 and $33.2 million. It declines to 0.9% when assets
reach $55 million.

Separate from the management fee, the Portfolio does reimburse the
Adviser at cost for Fund accounting (calculating daily prices) and transfer
agency costs (keeping up with Fund ownership).

The Adviser has negotiated its trading commission down to less than 1/4
the industry average. This is partly because the Adviser uses no soft dollar or
directed brokerage arrangements. Under a soft dollar commission arrangement, a
stock broker agrees to provide a benefit to the Fund or Advisor, such as
research, computer terminals, publications, or other services in return for a
higher commission cost to the Fund. These arrangements may benefit the Adviser,
at the expense of the shareholder.

"Other costs" borne by the Fund include audit fees, custodial fees (paid
to the bank which holds Fund assets), state and federal registration fees,
directors' compensation, and legal expenses.

The total of the management, distribution, and "other" expenses is called
"total operating expense." By contract between the Fund and the Adviser, the
maximum total expenses paid by the Fund in any one year cannot exceed 2.0%. The
average expense ratio of retail mutual funds with a median market capitalization
below $150 million was 2.39% at the end of 1998. The average expense ratio of
all domestic equity funds was 1.42%. It is significantly more expensive to
manage funds with lower market capitalization and a lower level of assets.
Bridgeway's lean cost structure enabled it to close the Ultra-Small Company
Portfolio at a very small asset level. Assuming the Portfolio continues to grow
through appreciation and additional investments by current shareholders, the
Adviser has targeted an expense ratio of 1.25% when assets reach $55 million.
There can be no assurance when or if this will happen, however. Cost management
is very important at Bridgeway. Please see
http://www.bridgewayfund.com/investme.htm#Cost efficiency: for more details.

9
<PAGE> 13
BRIDGEWAY FUND, INC. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
ULTRA-SMALL COMPANY PORTFOLIO

Year Year Year Year 8/5/94(a)
Ended Ended Ended Ended to
6/30/99 6/30/98 6/30/97 6/30/96 6/30/95
<S> <C> <C> <C> <C> <C>
PER SHARE DATA(1)
Net Asset Value,
beginning of period $22.52 $20.62(5) $16.68 $11.35 $10.33
------ ------ ------ ------ ------
Income (Loss)
from investment operations(3)
Net Investment income (Loss) (0.28) (0.34) (0.24) (0.21) (0.04)
Net realized and unrealized
gain (3.77) 4.03 4.50 6.03 1.07
------ ------ ------ ------ ------
Total from investment
operations (4.05)(6) 3.694 4.26 5.82 1.03
------ ------ ------ ------ ------
Less distributions to shareholders(7)
Net investment income 0.00 0.00 0.00 0.00 0.00
Net realized gain (3.56)(8) (1.79) (0.32) (0.49) (0.01)
------ ------ ------ ------ ------
Total distributions(9) (3.56)(10) (1.79) (0.32) (0.49) (0.01)
------ ------ ------ ------ ------
Net asset value, end of period $14.91 $22.52 $20.62 $16.68 $11.35
====== ====== ====== ====== ======
PORTFOLIO TOTAL RETURN -14.57% 18.40% 25.97% 52.42% 10.47%
CRSP 10 INDEX RETURN -4.15% 17.51% 7.50% 28.77% 19.22%
</TABLE>

(a) August 5, 1994 was a commencement of operations.

(b) Not annualized for periods less than a year.

(c) CRSP Cap-Based Portfolio 10 Index is an unmanaged index of 2409 of the
smallest publicly traded U.S. stocks (with dividends reinvested) as
reported by the Center for Research on Security Prices.

See accompanying notes to financial statements.

Numeric footnotes in the table reference explanations on the following page.

TRANSLATION

What is Total Return? Is This Record a Good One?

"Portfolio Total Return" answers the question, "How much has my
investment gone up or down, assuming I reinvest dividend distributions and don't
add or withdraw money during the year?" The total return data above is presented
by Portfolio fiscal year. See page 6 for a presentation by calendar year.
Equivalent figures for the CRSP Index of ultra-small companies are presented as
a market benchmark for comparison. The Adviser seeks to beat the performance of
this index. It has been successful in three out of five fiscal years and on a
cumulative basis. Of 13 funds with a median market capitalization of less than
$170 million, only our Portfolio had achieved this record as of 6/30/99. Within
the universe of funds investing in very small stocks, we believe this cumulative
record is a good one. The Fiscal Year 1999 return is not. Past results do not
guarantee future returns.

10
<PAGE> 14

TRANSLATION

What's the Significance of the "Per Share Data?"

What Do All These Numbers Mean? Why Should I Care?

The source of changes in the "net asset value," also known as the "NAV"
or simply "share price" of the Portfolio is described in the section "per share
data."(1). It does not answer the question, "How much has the value of my
portfolio gone up or down in the last year?" The line labeled "Portfolio Total
Return"(2) answers that question (See "What is total return?" on the previous
page.)

There are two major sources of changes in net asset value. The first is
from "investment operations"(3). For example, for the year ended 6/30/98, the
Portfolio's net asset value went up $3.69(4) as a result of investment
operations, a pretty good year's increase from the beginning net asset value
base of $20.62(5). In the most recent fiscal year ending 6/30/99, Portfolio
shareholders endured the worst bear market in ultra-small stocks since 1974. The
net asset value went down $4.05(6) as a result of investment operations.
Investment operations is made up of two components: 1) net investment income
(the sum of dividends and interest, less the cost of operating expenses) and 2)
net realized and unrealized gains (a stock's appreciation in value is "realized"
when it is sold; the appreciation in value is "unrealized" while it remains in
the portfolio).

The second major source of changes in net asset value is "distributions
to shareholders"(7). By federal tax law, mutual funds must distribute income and
gains of the Portfolio to shareholders. For example, in Fiscal Year 1999, we
distributed $3.56(8) per share of realized capital gains (gains from the
appreciation of stocks that we sold) to shareholders. As a result of the
distribution, the net asset value declined by the same amount. Most shareholders
reinvested the dividend to purchase additional shares of the Portfolio. In the
Ultra-Small Company Portfolio, all of the distributions have been from realized
gains, and there has been no net investment income to distribute.

The "total distributions"(9) line can give you an idea of the tax
efficiency of this Portfolio. (However, if you hold shares through a
tax-deferred account such as an IRA, tax efficiency is irrelevant.) Depending on
the timing of selling stock from the Portfolio, there can be a lag effect. For
example, the $3.56(10) total distribution to shareholders in the most recent
fiscal year was primarily from gains on stocks which had appreciated in prior
years. Through the Portfolio's first five fiscal years, it has distributed to
shareholders an amount equal to 57% of "investment operations." A bit less than
half of our gains were short-term, on which most people pay higher taxes.
Ultra-Small Company is not one of Bridgeway's more tax efficient portfolios, but
the Adviser seeks to minimize taxable distributions when the total return is not
adversely affected.

<PAGE> 15

BRIDGEWAY FUND, INC. FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
ULTRA-SMALL COMPANY PORTFOLIO
- - ----------------------------------------------------------------------------------------
Year Year Year Year 8/5/94(a)
Ended Ended Ended Ended to
6/30/99 6/30/98 6/30/97 6/30/96 6/30/95
----------------------------------------------
<S> <C> <C> <C> <C> <C>
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period (in 000s)(1) $32,648 $46,257 $30,070 $ 4,558 $ 668
Ratio to average net assets:
Expenses after waivers and
reimbursements(2) 2.00% 1.67% 1.67% 1.97% 1.68%
Expenses before waivers and
reimbursements(3) 2.26% 1.67% 1.87% 3.07% 8.34%
Net investment income (loss) after
waivers and reimbursements(4) (1.82%) (1.42%) (1.37%) (1.47%) (0.65%)
Portfolio turnover rate(b)(5) 80.4% 103.4% 56.2% 155.9% 103.6%
</TABLE>

(a) August 5, 1994 was commencement of operations. See accompanying notes to
financial statements.
(b) Annualized for periods less than a year.
See accompanying notes to financial statements.
Numeric footnotes in the table reference explanations in the text below.

TRANSLATION

What is the Significance of the Other Ratios?

The net worth of the Portfolio is called "net assets."(1)

"Expenses after waivers and reimbursements"(2) is the percentage of your
investment that you pay for the Portfolio's operating expenses. (See page 9
"Costs of Fund Ownership.") These expenses are already included in (that is,
subtracted from) the return of the Portfolio; they are not billed to you
separately. At the current expense rate of 2.0%, the Ultra-Small Company
Portfolio is slightly more efficient than the average of other funds investing
in very small companies, but less efficient than the average fund investing in
larger companies. The Adviser's target is to get expenses down to a very lean
1.25% when net assets reach $55 million. There can be no assurance when or if
this will happen, however.

By contract with the Fund, the Adviser reimburses the Portfolio for
expenses above 2.0%. "Expenses before waivers and reimbursements"(3) indicates
the amount the Portfolio would incur if the Adviser ceased reimbursements in
some future year. While this is unlikely, it is theoretically possible.

12
<PAGE> 16

"Net investment income"(4) is the sum of stock dividends and interest
less operating expenses. It is a more significant number for funds whose
objective is to provide income. It is unlikely that this Portfolio will ever
distribute any income, since most ultra-small stocks pay no dividends.

13
<PAGE> 17

THE ULTRA-SMALL INDEX PORTFOLIO

INVESTMENT OBJECTIVE: To provide a long-term total return of capital,
primarily through capital appreciation, by approximately tracking the total
return of the Cap-Based Portfolio 10 Index published by the University of
Chicago's Center for Research in Security Prices (CRSP).

INVESTMENT STRATEGY: The Ultra-Small Index Portfolio invests passively in
a representative sample of CRSP index domestic stocks listed on the New York and
American Stock exchanges and the NASDAQ National Market, although the majority
of stocks are traded on NASDAQ. These companies have a market capitalization the
size of the smallest 10% of companies listed on the New York Stock Exchange. On
June 30, 1999, this group included stocks with a market capitalization up to $89
million. They are less than one-tenth the size of companies in the widely quoted
Russell 2000 Index of small companies. Bridgeway Capital Management believes
that no other mutual fund family is committed to investing long-term in
companies this small.

TRANSLATION

What are Ultra-Small Companies?

TRANSLATION

How Does This Index Fund Work?

As a passively managed index fund, the Portfolio seeks to replicate the
performance of CRSP Cap-Based Portfolio 10 Index by purchasing a representative
sample of the 2400+ companies in the Index. It does not buy and sell stocks to
"beat the market," something which the vast majority of funds have failed to
accomplish. Since trading costs and operational costs are a drag on index fund
performance, the Adviser seeks to keep both of these very low. Less trading
should not only improve Portfolio performance, but should lead to very high tax
efficiency. (See "Tax Efficiency" on 63.)

How does the Adviser choose which index stocks to include in the Portfolio?

The Adviser considers market capitalization, industry/sector
representation, and certain economic factors (such as price-to-earnings ratios)
when choosing companies to add to the Portfolio.

14
<PAGE> 18

TRANSLATION

When a Company Leaves the CRSP Index Because it Has Grown Larger
Than "Ultra-Small," Must the Adviser Sell It? Under What Circumstances
Does the Adviser Sell a Stock?

The Adviser will generally consider selling a security in four
circumstances only:

The Adviser will consider selling the highest capitalization companies in
the Ultra-Small Index Portfolio when necessary to keep the average market
capitalization of the Portfolio equal to that of the CRSP Cap-Based
Portfolio 10 Index.

The Adviser may sell Portfolio securities to realize a capital loss (in
order to offset a portion of portfolio gains) when it does not add to
trading costs. Thus, the Adviser engages in "tax management" of this
Portfolio, when it is without detriment to shareholders of non-taxable
accounts.

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 will sell a
company which it expects to be removed from the CRSP Index. 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.

SPECIAL RISK FACTORS: The market price of ultra-small company shares
typically exhibits much greater volatility than large company shares and
significantly greater volatility than small company shares. While ultra-small
companies have historically had a higher average annual return than large stocks
over a longer term of 25 years and more, they have also had commensurably higher
volatility. Therefore, shareholders of this portfolio are exposed to higher
short-term risk.

Ultra-small companies normally:

o have limited resources for expanding or surviving in a newly competitive
environment,

o may lack depth of management,

o may have a limited product line,

o may lack market "muscle," and

o may be more sensitive to economic downturns than companies with large
capitalizations.

<PAGE> 19

Apart from the risk inherent in investing in ultra-small companies, there is a
risk that the Portfolio may underperform the CRSP Index which the Portfolio
seeks to track. Similar to other index funds, the actual return of this
portfolio could underperform for three reasons:

o operating expenses eat into returns,

o transaction costs reduce returns, and

o the Adviser seeks to duplicate the Index returns by investing in only a
representative sample of the 2400+ companies that comprise the index.

By the end of the second fiscal year ended June 30, 1999, the Adviser had
established a very successful system of reducing, if not eliminating the
negative effects of operating expenses and transaction costs through superior
trading practices. However, the quarterly "tracking error" due to holding too
few stocks during the first two years of the Portfolio has been unacceptably
high: from a maximum of +5.4% to a minimum of -6.2%. The Adviser has specific
plans to double the number of Portfolio stocks within the current fiscal year
with a goal of decreasing quarterly tracking error to within +-3%.

WHO SHOULD INVEST: The Adviser believes that 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 very high short-term price
volatility, or as a diversifier to a portfolio consisting primarily of large
stocks. IT IS NOT AN APPROPRIATE INVESTMENT FOR SHORT-TERM INVESTORS, THOSE
TRYING TO TIME THE MARKET OR THOSE WHO WOULD PANIC DURING A MAJOR MARKET OR
PORTFOLIO CORRECTION. (See "Frequent Trading of Fund Shares" on page 61). The
Portfolio may also be appropriate for investors who want exposure to very small
stocks, but who do not want the risk of underperforming an index which includes
actively managed "micro-cap" or "ultra-small" stock funds. (As of June, 1999,
none of the 13 domestic equity funds with a median market capitalization less
than $170 million and a five-year track record had outperformed the CRSP indexes
of ultra-small or micro-cap stocks.)

TRANSLATION

If Short-Term Risk is So High, Why Would Anyone Want to Invest?

16
<PAGE> 20

ially devastating effects of inflation better than most kinds of investments.
U.S. Treasury bills, for example, lost 41% of their purchase power to the
effects of inflation from 1940 to 1950. Of course, future results may vary from
historical ones.

YEAR BY YEAR % RETURNS AS OF 12/31 OF EACH YEAR

<TABLE>
<CAPTION>
1997(1) 1998 1999(2)
------- ------- -------
<S> <C> <C> <C>
Ultra-Small Index -0.40% -1.81% 1.43%
CRSP 10 Index 6.38% -10.79% 12.96%
</TABLE>

(1) From date of inception (7/31/97). Best Quarter for USI: Q1 98, +17.67%
(2) Through June 30,1999. Worst Quarter for USI: Q3 98, -22.85%

AVERAGE ANNUAL TOTAL % RETURNS AS OF 6/30/99

<TABLE>
<CAPTION>
1 Year Since Inception (7/31/97)
------- -------------------------
<S> <C> <C>
Bridgeway Ultra-Small Index -12.83% -0.42%
CRSP Cap-based Portfolio 10 Index(1) -4.15% 3.74%
</TABLE>

TRANSLATION

Is This Performance Record a Good One?

Ultra-small stocks have performed poorly relative to large companies for
the Portfolio's first two fiscal years. In addition, our tracking error has been
too high (as discussed on page 16.) Within fiscal 6/30/00, we expect to increase
the number of companies from 170 on 6/30/99 to over 300 to reduce our tracking
error.

17
<PAGE> 21

FEES AND EXPENSES: Bridgeway Fund is a fully no-load fund: it does not
charge any fees for maintaining your account or for buying, selling, or
exchanging your shares. Your only cost is your share of annual operating
expenses. The following fee table and expense example can help compare costs
among funds.

ULTRA-SMALL INDEX FEE TABLE

[C]
SHAREHOLDER FEES (LOADS)
Sales Charge (Load) Imposed on Purchases None
Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fees (See "Redemption Reimbursement Fee" on page 23.) 0.00%
Exchange Fees None

ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.50%
Distribution (12b-1) Fees None
Other Expenses 0.25%
-----
Total Operating Expenses 0.75%

* The figures in the table are based on last fiscal year's expenses. Actual
expenses this fiscal year may be higher or lower.

ULTRA-SMALL INDEX EXPENSE EXAMPLE

[C] [C] [C] [C]
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Expenses $75 $236 $414 $943

The example assumes that you invested $10,000 for the periods shown, that
you earned a hypothetical 5% total return each year, and that the Portfolio's
expenses were those listed in the table above. Your costs would be the same
whether you sold your shares or continued to hold them at the end of each
period. Actual performance and expenses may be higher or lower.

TRANSLATION

What is the Advantage of Passive Management?

The adviser of an "actively managed" fund buys and sells many securities
within the objective of the fund. An index fund is called "passively managed"
because the adviser only purchases the securities that are listed in the index
that the fund tracks. The result of less management time in stock selection is
usually reflected in lower expenses. As an investor, you get to keep a higher
percentage of a fund's investment returns.

How Does the Portfolio Expense Ratio Compare With That of Other Funds?

The 0.75% Portfolio expense ratio compares to 1.52% for all retail
domestic equity funds and 0.77% for small-company index funds. Since trading
ultra-small companies is much more time intensive than trading small companies,
we believe our expense ratio is very attractive.

<PAGE> 22

TRANSLATION

Are There "Hidden Fees" Inside the Fund?

Yes. In addition to the operating expenses above, the Portfolio pays
commission costs to brokerage firms to buy and sell Portfolio stocks. Last year,
these costs represented 0.07% of average net assets, or $7.00 for a $10,000
investment. This is much less than most other actively managed funds. We wish we
could add this information to the table above, but it would go against both
generally accepted accounting rules and industry practice. We choose to disclose
it here.

Are There "Hidden Fees" Outside the Fund?

Maybe. The "Translation" below explains the management fee and operating
expense borne by Portfolio investors. In addition, investors may pay transaction
fees to some, though not all, "fund marketplaces" where they purchase shares.
Please see "How to Purchase Shares" on page 60 or call Bridgeway at 800-661-3550
for details.

TRANSLATION

What are the Costs of Fund Ownership?

All fees paid to the Adviser are included in the management fee. As an
example, a 0.5% annual fee means that a shareholder with an average $10,000
account pays $50 each year.

Separate from the management fee, the Portfolio does reimburse the
Adviser at cost for Fund accounting (calculating daily prices) and transfer
agency costs (keeping up with Fund ownership).

The Adviser has negotiated its trading commission down to less than 1/4
the industry average. This is partly because the Adviser uses no soft dollar or
directed brokerage arrangements. Under a soft dollar commission arrangement, a
stock broker agrees to provide a benefit to the Fund or Adviser, such as
research, computer terminals, publications, or other services in return for a
higher commission cost to the Fund. These arrangements may benefit the Adviser,
at the expense of the shareholder.

"Other costs" borne by the Fund include audit fees, custodial fees (paid
to the bank which holds Fund assets), state and federal registration fees,
directors' compensation, and legal expenses.

<PAGE> 23

BRIDGEWAY FUND, INC. FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

ULTRA-SMALL INDEX PORTFOLIO
<TABLE>
<ST> <C> <C>
Year Ended 6/30/99 7/31/97(a) to 6/30/98
------------------ ---------------------
PER SHARE DATA(1)
Net Asset Value, beginning of period $5.69 $5.00(5)
--------- --------
Income (Loss) from investment operations(3)
Net Investment Income (loss) (0.02) (0.02)
--------- --------
Net realized and unrealized gain (0.71) 0.71
--------- --------
Total from investment operations (0.73)(6) 0.69(4)
--------- --------
Less distributions to shareholders(7)
Net investment income 0.00 0.00
Net realized gains 0.00 0.00
--------- --------
Total distribution(6) 0.00 0.00
--------- --------
Net asset value, end of period $4.96 $5.69
--------- --------

PORTFOLIO TOTAL RETURN(b),(a) (12.83%) 13.80%
DRSP 10 INDEX RETURN(b),(c) (4.15%) 11.93%
</TABLE>

(a) July 31, 1997 was commencement of operations.
(b) Not annualized for periods less than a year.
(c) CRSP Cap-Based Portfolio 10 Index is an unmanaged index of 2409 of the
smallest publicly traded U.S. stocks (with dividends reinvested) as
reported by the Center for Research on Security Prices.
See accompanying notes to financial statements.
Numeric footnote in the table reference explanations in the text on the
following page.

TRANSLATION

What is Total Return?

Portfolio total return answers the question, "How much has my investment
gone up or down, assuming I reinvest dividend distributions and don't add or
withdraw money during the year?" This data is presented by Portfolio fiscal
year. See page 17 for a presentation by calendar year. Equivalent figures for
the CRSP Index of ultra-small companies are presented as a market "benchmark"
for comparison. The Adviser seeks to match the performance of this index. Past
results do not guarantee future returns.

<PAGE> 24

TRANSLATION

What's the Significance of the "Per Share Data?"

What Do All These Numbers Mean? Why Should I Care?

There are two major sources of changes in net asset value. The first is
from "investment operations."(3) For example, for the year ended 6/30/98, the
Portfolio's net asset value went up $0.69(4) as a result of investment
operations, a pretty good year's increase from the beginning net asset value
base of $5.00(5). In the most recent fiscal year ending 6/30/99, Portfolio
shareholders endured the worst bear market in ultra-small stocks since 1974. The
net asset value went down $0.73(6) as a result of investment operations.
Investment operations is made up of two components: 1) net investment income
(the sum of dividends and interest, less the cost of operating expenses) and 2)
net realized and unrealized gains (a stock's appreciation in value is "realized"
when it is sold; the appreciation in value is "unrealized" while it remains in
the portfolio). Numbers in parentheses indicate losses or declines.

The second major source of changes in net asset value is "distributions
to shareholders"(7). By federal tax law, mutual funds must distribute income and
gains of the Portfolio to shareholders. Because this is a tax-managed Portfolio,
the Adviser seeks to minimize taxable distributions. For the first two years
there have been none.

The "total distributions"(8) line can give you an idea of the tax
efficiency of this Portfolio. However, if you hold shares through a tax-deferred
account such as an IRA, tax efficiency is irrelevant. We consider Ultra-Small
Company to be Bridgeway's most tax efficient portfolio, since ultra-small
companies typically pay no dividends and since we seek not to distribute capital
gains. However, the Portfolio may need to distribute capital gains at some time
in the future.

<PAGE> 25

BRIDGEWAY FUND, INC. FINANCIAL HIGHLIGHTS
ULTRA-SMALL INDEX PORTFOLIO
<TABLE>
<CAPTION>

Year Ended 6/30/99 7/31/97* to 6/30/98
RATIOS & SUPPLEMENTAL DATA
<S> <C> <C>
Net assets, end of period (in 000s)(1) $1,586 $1,529
Ratio to average net assets:(b)
Expenses after waivers and reimbursements(2) 0.75%(3) 0.75%
Expenses before waivers and reimbursements(4) 2.43% 1.74%
Net investment income (loss) after waivers and (0.51%) (0.38%)
reimbursements(5)

Portfolio turnover rate(b)(6) 48.3% 61.7%
</TABLE>

(a)July 31, 1997 was commencement of operations.
(b)Not annualized for periods less than a year.
(c)CRSP Cap-Based Portfolio 10 Index is an unmanaged index of 2409 of the
smallest publicly traded U.S. stocks (with dividends reinvested) as reported
by the Center for Research on Security Prices.
See accompanying notes to financial statements.
Numeric footnotes refer to the explanation below.

TRANSLATION

What is the Significance of the Other Ratios?

The net worth of the Portfolio is called "net assets."(1)

"Expenses after waivers and reimbursements"(2) is the percentage of your
investment that you pay for the Portfolio's operating expenses. These expenses
are subtracted from the return of the Portfolio; they are not billed to you
separately. At the expense rate of 0.75%(3), the Ultra-Small Index Portfolio is
significantly more efficient than the average of actively managed funds
investing in any size company, and is slightly more efficient than the average
of small-cap retail index funds. There are no other ultra-small or micro-cap
retail funds to compare to, however.

By contract with the Fund, the Adviser reimburses the Portfolio for
expenses above 0.75%. "Expenses before waivers and reimbursements"(4) indicates
the amount of expenses the Portfolio would incur if the Adviser ceased
reimbursements in some future year, assuming similar size and operation. While
this is highly unlikely, it is theoretically possible.

"Net investment income"(5) is the sum of stock dividends and interest
less operating expenses. It is a more significant number for funds whose
objective is to provide income. It is unlikely that this Portfolio will ever
distribute any income, since most ultra-small stocks pay no dividends.

22
<PAGE> 26

"Portfolio turnover rate"(6) indicates the amount of portfolio holdings
that are bought and sold in a year relative to the total net assets. A turnover
rate of 100% is equivalent to the sale and repurchase of all of the securities
in the portfolio one time during the year. The Ultra-Small Index Portfolio's
recent 48% turnover rate compares favorably to the average 87% rate among all
small company mutual funds, but is slightly higher than the 41% rate of
small-cap retail index funds. The turnover associated with the Portfolio is
primarily related to the tax management feature. Due to trading techniques used
by the Adviser, it does not believe this turnover to be detrimental to
shareholders in either taxable or tax-deferred accounts. Bridgeway works hard to
minimize this trading cost and believes that it has among the lowest, if not the
lowest commission cost per share in the industry. One indication that the
Portfolio's level of turnover is not detrimental is that there have been no
taxable distributions.

ULTRA-SMALL INDEX REDEMPTION REIMBURSEMENT FEE: The Bridgeway index
portfolios are best suited for investors who intend to be long-term
shareholders. Shareholders who redeem frequently or in the height of a market
downturn increase costs for the remaining shareholders.

The Board of Directors seeks to both discourage any short-term investors
and to reimburse remaining shareholders for increased costs by reserving the
right to impose a 2% redemption fee on shareholders who redeem in a down market.
Specifically, the Board of Directors may impose this fee any time the S&P500
(without dividends reinvested) has declined more that 5% over the previous 5
trading days.

No such reimbursement fees were charged in the Portfolio's first two
fiscal years.

23
<PAGE> 27

NOTES:

<PAGE> 28

THE MICRO-CAP LIMITED PORTFOLIO

INVESTMENT OBJECTIVE: To provide a long-term total return of capital,
primarily through capital appreciation.

INVESTMENT STRATEGY: The Micro-Cap Limited Portfolio invests in a
diversified portfolio of common stocks of micro-cap companies. "Micro-cap"
companies are those with a market capitalization the size of the second smallest
10% of those listed on the New York Stock Exchange. On June 30, 1999, this group
included stocks with a market capitalization between $90 and $170 million. The
majority of stocks in this Portfolio are listed on NASDAQ rather than the New
York Stock Exchange. The Adviser selects stocks for the Portfolio according to
proprietary quantitative models that span various investment styles, including
both "growth" and "value." Value stocks are those priced cheaply relative to
some financial measures of worth. Growth stocks have faster increasing sales and
earnings. The Adviser may invest up to 10% of assets in foreign micro-cap stocks
that are listed on American exchanges.

SPECIAL RISK FACTORS: The market price of Micro-Cap Limited shares typically
exhibit much greater volatility than large company shares. While micro-cap
companies have historically had a somewhat higher average annual return than
large stocks over the last seven decades, they have also had significantly
higher volatility. Therefore, shareholders of this Portfolio are exposed to
higher short-term risk. In addition, the Adviser concentrates Portfolio
investments in a fewer number of companies than many mutual funds. There were 46
companies in the Portfolio on 6/30/99. This "concentration" or "focus," will
likely add to Portfolio volatility.

Micro-cap companies normally:

have limited resources for expanding or surviving in a newly competitive

o environment,

o may lack depth of management,

o may have a limited product line,

o may lack market "muscle," and

o may be more sensitive to economic downturns than companies with large

o capitalizations

TRANSLATION

What are Micro-Cap Companies?

Compared to the size companies in which most other mutual funds invest,
micro-cap companies are very small. Bridgeway defines "micro-cap" according to
the definition most frequently used by academia. They are smaller than small-cap
and larger than ultra-small. Companies this size typically have 50 to 2000
employees, produce revenues of $50 million to $2 billion annually, and may be
known for just one product or service. Relative to large companies, a higher
percentage of micro-cap companies this size go out of business each year, but a
higher percentage also double in size.

<PAGE> 29

TRANSLATION

If Short-Term Risk is So High, Why Would Anyone Want to Invest?

While micro-cap stocks and portfolio concentration expose investors to
extreme short-term price swings, the Adviser seeks to compensate investors for
this additional short-term risk with higher return. While Portfolio performance
was remarkable in the its first fiscal year, it is unlikely that the Portfolio
will outperform market benchmarks in every year. The characteristics of
micro-cap companies that render them more risky also have an "upside" that makes
them attractive during periods of small company performance. For example,
although they may have a limited product line, one successful product may affect
profitability dramatically. They may fall farther in a market downturn, but
recover more quickly afterwards. They may also respond quicker to changing
market forces and may be less bureaucratic in management. Historically, the
higher long-term return of micro-cap companies has shielded investors from the
potentially devastating effects of inflation better than large stocks, bonds,
and other interest bearing investments over periods of ten years and more. U.S.
Treasury bills, for example, lost 41% of their purchase power to the effects of
inflation from 1940 to 1950. Of course, future results could vary from
historical ones. The Adviser also believes that investing in fewer stocks will
improve Portfolio returns, since a higher percentage of investments are held in
the companies identified as best prospects. This concentration is only possible
because of the Portfolio's very low closing commitment.

PORTFOLIO CLOSING COMMITMENT: The Portfolio will close to new investors
and will remain closed any time net assets exceed $27.5 million. The Portfolio
will close even to current shareholders when assets reach a maximum of $55
million.

TRANSLATION

Why is Closing at a Small Level of Assets So Important?

Bridgeway has committed to closing the Micro-Cap Limited Portfolio to new
investors at half the net asset level of any non-Bridgeway portfolio closing. In
order to invest actively in micro-cap companies, a fund must itself be very
small. If a large fund invested 1% of its assets in a micro-cap stock, it could
own the whole company. By keeping it's own costs low, Bridgeway is able to offer
a unique portfolio and stay more "nimble" in the marketplace. Most micro-cap and
small-cap funds with good performance records get flooded with too much cash,
and performance thereafter suffers.

26
<PAGE> 30

PERFORMANCE: The bar chart below shows how the Portfolio's performance
has varied from one year to another. The table below the chart shows the return
for the one year since inception. This information is based on past performance.
It is not a prediction of future results.

YEAR BY YEAR % RETURNS AS OF 12/31 OF EACH YEAR

Micro-Cap Limited 7.60% 18.59%
CRSP 9 Index -8.00% 12.55%

</TABLE>

(1) From date of inception (6/30/98). Best Quarter for MCL: Q4 98,+ 41.58%
(2) Through June 30,1999. Worst Quarter for MCL: Q3 99, -24.00%

AVERAGE ANNUAL TOTAL % RETURNS AS OF 6/30/99

<TABLE>

FUND/INDEX 6/30/98-6/30/99
(1 YEAR)
<S> <C>

Bridgeway Micro-Cap Limited 27.60%

CRSP Cap-based Portfolio 9 Index(1) 3.55%

</TABLE>

(1) The CRSP Cap-Based Portfolio 9 Index is an unmanaged index of 853 micro-cap
companies compiled by the Center for Research in Security Prices, with dividends
reinvested. Past performance does not guarantee future results.

TRANSLATION

Last fall the Portfolio suffered the worst micro-cap market correction
since 1974, declining 24% in the September quarter. The Portfolio recovered
nicely in the December quarter, however, leading the Portfolio to a 7.6% first
half-year return. In the March quarter, the Portfolio lost some of the previous
quarter's return, following this with another period of outstanding returns in
the June quarter. Overall, the Portfolio finished its first year with a return
that was 24.1% above the market index of similar size companies. It also
demonstrated the extreme volatility that is possible in this Portfolio. Detailed
performance explanations are included in quarterly reports to shareholders. (See
the back cover.)

27
<PAGE> 31

FEES AND EXPENSES: Bridgeway Fund is fully no-load; it does not charge
any fees for maintaining your account or for buying, selling, or exchanging your
shares. Your only Fund cost is your share of annual operating expenses. The
following fee table and expense example can help you compare costs among funds.

MICRO-CAP LIMITED FEE TABLE

SHAREHOLDER FEES (LOADS)

Sales Charge (Load) Imposed on Purchases None
Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None

ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)

Management Fees 1.57%
Distribution (12b-1) Fees None
Other Expenses 0.33%
-----
Total Operating Expenses 1.90%

*The figures in the table are based on recent (maximum) expense rates. The first
fiscal year's expenses were actually lower, because the performance fee
adjustment was not applicable in the first year. Actual total expenses this
fiscal year will be the same as or lower than that indicated by the table above.

MICRO-CAP LIMITED EXPENSE EXAMPLE

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Expenses $190 $599 $1,050 $2,390

TRANSLATION

Are There "Hidden Fees" Inside the Fund?

Yes. In addition to the operating expenses above, the Portfolio pays
commission costs to brokerage firms to buy and sell Portfolio stocks. Last year,
these costs represented 0.13% of average net assets, or $13 for a $10,000
investment. This is much less than most other actively managed funds. We wish we
could add this information to the table above, but it would go against both
generally accepted accounting rules and industry practice. We choose to disclose
it here.

28
<PAGE> 32

Are There "Hidden Fees" Outside the Fund?

Maybe. The "Translation" on the opposite page explains the management fee
and operating expense borne by Portfolio investors. In addition, investors may
pay transaction fees to some, though not all, "fund marketplaces" where they
purchase shares. Please see "How to Purchase Shares" on page 60 or call
Bridgeway at 800-661-3550 for details.

TRANSLATION

What are the Costs of Fund Ownership?

Bridgeway Fund is fully "no-load;" there are no sales charges to buy or
sell shares. The Adviser (not the shareholder) pays all the costs associated
with distributing the Fund to new shareholders. The Fund keeps these costs to a
minimum by doing essentially no advertising.

All fees paid to the Adviser are included in the management fee. This fee
may be as low as 0.2% or as high as 1.6% depending on Portfolio performance
relative to a market benchmark over the last five years. Until the Portfolio is
five years old, it will be based on the period since 6/30/98. As an example, a
1.57% annual fee means that a shareholder with an average $10,000 account pays
$157 each year. The management fee structure is potentially higher when assets
are between $27.5 and $55 million. Please see the Statement of Additional
Information for more details.

Separate from the management fee, the Portfolio does reimburse the
Adviser at cost for Fund accounting (calculating daily prices) and transfer
agency costs (keeping up with Fund ownership).

The Adviser has negotiated trading commission down to less than 1/4 the
industry average. This is partly because the Adviser uses no soft dollar or
directed brokerage arrangements. Under a soft dollar commission arrangement, a
stock broker agrees to provide a benefit to the Fund or Adviser, such as
research, computer terminals, publications, or other services in return for a
higher commission cost to the Fund. These arrangements may benefit the Adviser,
at the expense of the shareholder.

"Other costs" borne by the Fund include audit fees, custodial fees (paid
to the bank which holds Fund assets), state and federal registration fees,
directors` compensation, and legal expenses.

<PAGE> 33

Cap Limited Portfolio at a very small asset level. Cost management is very
important at Bridgeway. Please see
http://www.bridgewayfund.com/investme.htm#Cost efficiency: for more details.

BRIDGEWAY FUND, INC. FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)

MICRO-CAP LIMITED PORTFOLIO
6/30/98(b) to 6/30/99 6/22/98(a) to 6/30/98
--------------------- ---------------------
PER SHARE DATA(5)
Net Asset Value, beginning of period $5.00(5) $5.00
Income (Loss) from investment operations(3)
Net Investment income (loss) (0.06) 0.00
Net realized and unrealized gain 1.44 0.00
Total from investment operations 1.38(4) 0.00
Less distributions to shareholders(6)
Net investment income 0.00 0.00
Net realized gains 0.00 0.00
Total distributions(7) 0.00 0.00
Net asset value, end of period $6.38 $5.00

PORTFOLIO TOTAL RETURN(c),(2) 27.60% 0.0%
CRSP 9 INDEX RETURN(c),(d) 3.58% n/a

(a) June 22, 1997 was initial offering.
(b) June 30, 1998 was commencement of operations.
(c) Not annualized for periods less than a year.
(d) CRSP Cap-Based Portfolio 9 Index is an unmanaged index of 853 of the
smallest publicly traded U.S. stocks (with dividends reinvested) as reported
by the Center for Research on Security Prices.

See accompanying notes to financial statements.
Numeric footnotes in the table reference explanations on the following page.

TRANSLATION

What is Total Return? Is This Record a Good One?

Portfolio total return answers the question, "How much has my investment
gone up or down, assuming I reinvest dividend distributions and don't add or
withdraw money during the year?" The total return data above is presented by
Portfolio fiscal year. Equivalent figures for the CRSP Index of micro-cap
companies are presented as a market benchmark for comparison. The Adviser seeks
to beat the performance of this index.

Yes, we had a very good year. In spite of suffering a major correction
last fall, the Portfolio was up 27.60% for its first fiscal year, significantly
ahead of our market benchmark. Past results do not guarantee future returns, and
we would not expect to "beat the market" every year.

30
<PAGE> 34

TRANSLATION

What's the Significance of the "Per Share Data?"

What Do All These Numbers Mean? Why Should I Care?

The source of changes in the "net asset value," also known as the "NAV"
or simply "share price" of the Portfolio is described in the section "per share
data."(1). It does not answer the question, "How much has the value of my
portfolio gone up or down in the last year?" The line labeled "Portfolio Total
Return"(2) relates to that question (See "What is total return?" on the previous
page.)

The "total distributions"(7) line can give you an idea of the tax
efficiency of this Portfolio. (However, if you hold shares through a
tax-deferred account such as an IRA, tax efficiency is irrelevant.) We don't
consider Micro-Cap Limited to be one of Bridgeway's more tax efficient
Portfolios, but the Adviser seeks to minimize taxable distributions when the
total return is not adversely affected.

<PAGE> 35
BRIDGEWAY FUND, INC. FINANCIAL HIGHLIGHTS

MICRO-CAP LIMITED PORTFOLIO

<TABLE>
6/30/98(b) to 6/22/98(a) to
6/30/99 6/30/98
<S> <C> <C>
RATIO & SUPPLEMENTAL DATA
Net assets, end of period (in 000s)(1) $13,932 $9,071
Ratio to average net assets:(c)
Expenses after waivers and reimbursements(2) 1.54% 0.00%
Expenses before waivers and reimbursements(3) 1.54% 0.00%
Net investment income (loss) after waivers
and reimbursements(4) -1.20% 0.00%

Portfolio turnover rate(a),(5) 117.0%(6) 0.00%
</TABLE>

(a) June 22, 1997 was initial offering.
(b) June 30, 1998 was commencement of operations.
(c) Not annualized for periods less than a year.
See accompanying notes to financial statements.
Numeric footnotes in the table reference explanations in the text below.

TRANSLATION

What is the Significance of the Other Ratios?

The net worth of the Portfolio is called "net assets."(1)

By contract with the Fund, the Adviser reimburses the Portfolio for
expenses above 1.9%. "Expenses before waivers and reimbursements"(3) indicates
the amount the Portfolio would incur if the Adviser ceased reimbursements in
some future year. This is highly unlikely, although theoretically possible.
There were no reimbursements in the first fiscal year since expenses were less
than 1.9%.

"Portfolio turnover rate"(5) indicates the amount of holdings that are
bought and sold in a year relative to the average net assets. A turnover rate of
100% is equivalent to the sale and repurchase of all of the securities in the
portfolio one time during the year. Micro-Cap Limited's recent 117%(6) turnover
rate is higher than the average 87% rate among small company mutual funds. Since
funds incur expenses with each trade, portfolio turnover can become very
important. Bridgeway works hard to minimize this cost and believes that it has
among the lowest, if not the lowest commission cost per share in the industry.
Turnover is also important because higher turnover funds tend to be less tax
efficient.

32
<PAGE> 36

THE AGGRESSIVE GROWTH PORTFOLIO

INVESTMENT OBJECTIVE: To exceed the stock market total return (primarily
through capital appreciation) at a level of total risk roughly equal to that of
the stock market over longer periods of time (three years or more).

INVESTMENT STRATEGY: The Aggressive Growth Portfolio invests in a
diversified portfolio of common stocks of all size companies that are listed on
the New York Stock Exchange, the American Stock Exchange and NASDAQ. The Adviser
selects stocks for the Portfolio according to proprietary quantitative models
that span various investment styles including both "growth" and "value." Value
stocks are those priced cheaply relative to some financial measures of worth.
Growth stocks have faster increasing sales and earnings. The Portfolio may also
use aggressive investment techniques such as:

o leveraging (borrowing up to 50% of its assets from banks).

o purchasing and selling futures and options on individual stocks and stock
indexes.

o entering into short-sale transactions (up to 20% of assets).

o investing up to 25% of assets in a single company.

o investing up to 10% of assets in foreign companies.

o short-term trading.

SPECIAL RISK FACTORS: In the Portfolio's first five years, the market
price of Aggressive Growth shares has exhibited greater short-term volatility
than large company shares. Because the Portfolio invests in any size company and
because there are a larger number of small companies, the Portfolio may bear the
short-term risk associated with small companies. In the small-company downturn
of 1998, for example, the Portfolio declined significantly more than large
companies, somewhat more than small companies, but less than Bridgeway's
actively managed ultra-small and micro-cap portfolios.

The Adviser concentrates Portfolio investments in a fewer number of
companies than many mutual funds. There were just 38 companies in the Portfolio
on 6/30/99. The top ten stocks accounted for 51% of Portfolio net assets. It is
not unusual for one or two stocks each to represent 10% or more of Portfolio
holdings. This is called "concentration" or "focus," and will likely add to
Portfolio volatility.

33
<PAGE> 37

The Adviser may use aggressive investment techniques involving leverage,
options, futures, and short sales. These techniques carry their own unique
risks, such as:

o leverage risk (these instruments individually may magnify the risk of
loss as well as potential gain),

o dependence on the Adviser's ability to measure risk and thus predict
market movement,

o imperfect correlation between the price of options and futures with
underlying securities,

o the possibility of trading halts in options and futures,

o the possible need to close certain hedged positions to avoid adverse tax
consequences, and

o the increased complexity of futures and options, requiring a higher level
of personnel training.

In spite of these additional risks, the Adviser believes that the primary
Portfolio risk is the effect of a stock market decline on its portfolio of
common stocks. The advanced techniques described are not "exotic derivatives"
traded over-the-counter. All are listed on major exchanges. Please see "Summary
of Investment Techniques " on page 4 and the Statement of Additional Information
for more details.

TRANSLATION

How are the Aggressive Investment Techniques Used?

The Adviser may use aggressive investment techniques such as leverage,
options, futures, and short sales primarily for three purposes: to manage risk
relative to individual stocks within diversification restrictions, to diversify
overall risk, and to change the overall Portfolio exposure to market risk.

In the language of modern portfolio theory, the Adviser may use these
advanced techniques to maintain a Portfolio total risk level roughly equal to
that of the market (S&P 500 Index) over longer periods (three years or more)
while varying the Portfolio beta from 0.0 to 1.5 over short time periods.

The Adviser believes that the primary source of Portfolio returns in the
future will continue to be its portfolio of common stocks. The advanced
techniques are primarily for risk management.

34
<PAGE> 38

PERFORMANCE: The bar chart below shows how the Portfolio's performance
has varied from one year to another. The table below the chart shows the
Portfolio's return by averaging actual performance over various lengths of time.
This information is based on past performance. It is not a prediction of future
results.

YEAR BY YEAR % RETURNS AS OF 12/31 OF EACH YEAR

<TABLE>
<CAPTION>
1994(1) 1995 1996 1997 1998 1999(2)
-------- ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth 8.31% 27.05% 32.20% 18.27% 18.28% 25.46%

S&P 500 Index 1.73% 37.53% 23.93% 33.35% 28.50% 12.38%
</TABLE>

(1) From date of inception (8/05/94). Best Quarter for AG: Q4 98, +38.57%

(2) Through June 30,1999. Worst Quarter for AG: Q3 98, -23.28%

AVERAGE ANNUAL TOTAL % RETURNS AS OF 6/30/99

FUND/INDEX 1 YEAR 3 YEAR SINCE INCEPTION (8/5/94)
- - ---------- ------ ------ ------------------------
<S> <C> <C> <C>
Bridgeway Aggressive Growth 33.38% 23.62% 27.06%

S&P 500 Index(1) 22.77% 28.21% 27.70%
</TABLE>

(1) The S&P 500 is an unmanaged index of large companies, with dividends
reinvested. Past performance does not guarantee future results.

TRANSLATION

The Aggressive Growth Portfolio returns have varied from year-to-year
relative to the S&P 500 Index of large companies. On average over the full
period since August, 1994, the Portfolio has underperformed this benchmark by
less than one percent per year. It has significantly outperformed indexes
representative of the broader market over the same period and ranks in the top
quartile of aggressive growth funds over the last year and since inception.
Short-term Portfolio returns have been more volatile than the S&P 500 Index. For
example, in the September quarter of 1998 the Portfolio suffered the worst
small-cap market correction since 1974, declining 23.3%, significantly more than
the 10% decline of the S&P 500 Index. However, the Portfolio recovered nicely in
the December quarter, up 38.6%, significantly ahead of the S&P 500 Index return
of 25.3%. Detailed performance explanations are included in quarterly reports to
shareholders. (See the back cover.)

<PAGE> 39

FEES AND EXPENSES: Bridgeway Fund is fully no-load; it does not charge
any fees for maintaining your account or for buying, selling, or exchanging your
shares. Your only fund cost is your share of annual operating expenses. The
following expense example can help you compare costs among funds.

AGGRESSIVE GROWTH FEE TABLE

SHAREHOLDER FEES (LOADS)
<S> <C>
Sales Charge (Load) Imposed on Purchase None
Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fee None

ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<S> <C>
Management Fees 0.20%
Distribution (12b-1) Fees None
Other Expenses 0.84%
----
Total Operating Expenses 1.04%
</TABLE>

*The figures in the table are based last fiscal year's expenses. Due to the
performance based management fee, actual expenses in the fiscal year ending
6/30/00 will probably be higher if the Portfolio continues its recent
performance above the S&P 500. The management fee was 0.53% and total operating
expenses were approximately 1.3% in the 9/30/99 quarter.

AGGRESSIVE GROWTH EXPENSE EXAMPLE

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Expenses $104 $328 $575 $1,308
</TABLE>

TRANSLATION

Are There "Hidden Fees" Inside the Fund?

Yes. In addition to the operating expenses above, the Portfolio pays
commission costs to brokerage firms to buy and sell Portfolio stocks. Last year,
these costs represented 0.13% of average net assets, or $13 for a $10,000
investment. This is less than most other actively managed funds. We wish we
could add this information to the table above, but it would go against both
generally accepted accounting rules and industry practice. We choose to disclose
it here.

<PAGE> 40

Are There "Hidden Fees" Outside the Fund?

TRANSLATION

What are the Costs of Fund Ownership?

All fees to the Adviser are included in the management fee. This fee may
be as low as 0.2% or as high as 1.6% depending on Portfolio performance relative
to the S&P 500 Index (market benchmark) over the last five years. As an example,
a 0.9% annual fee means that a shareholder with an average $10,000 account pays
$90 each year. All fees to the Adviser are included in this management fee.

Separate from the management fee, the Portfolio does reimburse the
Adviser at cost for Fund accounting (calculating daily prices) and transfer
agency costs (keeping up with Fund ownership).

The Adviser has negotiated its trading commission down to less than 1/4
the industry average. This is partly because the Adviser uses no soft dollar or
affiliated brokerage arrangements. Under a soft dollar commission arrangement, a
stock broker agrees to provide a benefit to the Fund or Adviser, such as
research, computer terminals, publications, or other services in return for a
higher commission cost to the Fund. These arrangements may benefit the Adviser,
at the expense of the shareholder.

"Other costs" borne by the Fund include audit fees, custodial fees (paid
to the bank which holds Fund assets), state and federal registration fees,
directors' compensation, and legal expenses.

<PAGE> 41
BRIDGEWAY FUND, INC. FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

AGGRESSIVE GROWTH PORTFOLIO

<TABLE>
<CAPTION>
Year Year Year Year 8/5/94(a)
Ended Ended Ended Ended to
6/30/99 6/30/98 6/30/97 6/30/96 6/30/95
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA(1)
Net Asset Value, beginning of period $ 20.32(5) $ 18.79 $ 16.66 $ 11.71 $ 9.89
------- ------- ------- ------- -------
Income (Loss) from investment operations(3)
Net Investment income (loss) (0.13) (0.30) (0.24) (0.18) (0.02)
Net realized and unrealized gain 6.43 3.46 3.43 5.22 1.84
------- ------- ------- ------- -------
Total from investment operations 6.30(4) 3.16 3.19 5.04 1.82
------- ------- ------- ------- -------
Less distributions to shareholders(6)
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(6) (0.60)(7) (1.63) (1.06) (0.09) 0.00
------- ------- ------- ------- -------
Net asset value, end of period $ 26.02 $ 20.32 $ 18.79 $ 16.66 $ 11.71
======= ======= ======= ======= =======
PORTFOLIO TOTAL RETURN(b),(a) 33.38% 18.08% 19.94% 43.26% 19.53%
S&P 500 INDEX RETURN(b),(c) 22.77% 30.16% 34.70% 26.01% 22.20%
</TABLE>

(a) August 5, 1994 was commencement of operations.

(b) Not annualized for periods less than a year.

See accompanying notes to financial statements.

Numeric footnotes in the table reference explanation in text on following page.

TRANSLATION

What is Total Return? Is This Record a Good One?

While the Portfolio has underperformed the S&P 500 Index by 0.6% per year
on a cumulative basis, it has outperformed the Russell 2000 Index of more
similar size companies by 11.8% per year. The Adviser is pleased with this
record, which ranks it in the top fourth of Aggressive Growth Funds over the
last year and since inception.

<PAGE> 42

TRANSLATION

What's the Significance of the "Per Share Data?"

What Do All These Numbers Mean? Why Should I Care?

The source of changes in the "net asset value," also known as the "NAV"
or simply "share price" of the Portfolio is described in the section "per share
data."(1). It does not answer the question, "How much has the value of my
Portfolio gone up or down in the last year?" The line labeled "Portfolio Total
Return" relates to that question (See "What is total return?"(2) on the previous
page.)

The second major source of changes in net asset value is "distributions
to shareholders."(6) By federal tax law, mutual funds must distribute income and
gains of the Portfolio to shareholders. For example, in Fiscal Year 1999, we
distributed $0.60(7) per share of realized capital gains (gains from the
appreciation in stocks that we sold) to shareholders. As a result of the
distribution, the net asset value declined by the same amount. Most shareholders
reinvested the dividend to purchase additional shares of the Portfolio. In the
Aggressive Growth Portfolio, all of the distributions have been from realized
gains, and there has been no net investment income to distribute.

The "total distributions"(8) line can give you an idea of the tax
efficiency of this Portfolio. However, if you hold shares through a tax-deferred
account such as an IRA, tax efficiency is irrelevant. To date, the total of
taxable distributions equals 17% of investment operations. This is reasonably
tax efficient, but from time to time there may be a "catch-up" distribution. We
don't consider Aggressive Growth to be one of Bridgeway's most tax efficient
Portfolios, but the Adviser seeks to minimize taxable distributions when the
total return is not adversely affected.

<PAGE> 43
BRIDGEWAY FUND, INC. FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------
AGGRESSIVE GROWTH PORTFOLIO
- - -----------------------------------------------------------------------------------------------------
Year Year Year Year 8/5/94(a)
Ended Ended Ended Ended to
6/30/99 6/30/98 6/30/97 6/30/96 6/30/95
- - ---------------------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
RATIOS & SUPPLEMENTAL DATA

Net assets, end of period (in 000s)(1) $ 9,510 $ 6,852 $ 3,420 $ 1,502 $ 276
Ratio to average net assets:(b)
Expenses after waivers and reimbursements(2) 1.04% 2.00% 2.00% 1.97% 1.86%
Expenses before waivers and reimbursements(3) 1.04% 2.00% 2.77% 5.73% 16.15%
Net investment income (loss) after waivers (0.65%) (1.50%) (1.40%) (1.26%) (0.30%)
and reimbursements(4)

Portfolio turnover rate (b),(5) 211.0%(6) 132.3% 138.9% 167.7% 139.9%
- - ------------------------------------------------------------------------------------------------------
</TABLE>

(a) August 5, 1994 was commencement of operations.
(b) Annualized for periods less than a year.
See accompanying notes to financial statements.
Numeric footnotes in the table reference explanation in text below.

TRANSLATION

What is the Significance of the Other Ratios?

The net worth of the Portfolio is called "net assets."(1)

"Portfolio turnover rate"(5) indicates the amount of Portfolio holdings
that are bought and sold in a year relative to the average net assets. A
turnover rate of 100% is equivalent to the sale and repurchase of all of the
securities in the Portfolio one time during the year. Aggressive Growth's recent
211%(6) turnover rate is higher than the average 123% rate among all retail
aggressive growth mutual funds. Since funds incur expenses with each trade made,
portfolio turnover can become very important. Bridgeway works hard to minimize
this cost and believes that it has among the lowest, if not the lowest
commission cost per share in the industry. Turnover is also important because
higher turnover funds tend to be less tax efficient.

<PAGE> 44

THE SOCIAL RESPONSIBILITY PORTFOLIO

TRANSLATION

What Are the Ten Social Criteria?

o Environmental record

o Charitable giving record

o Advancement of minorities

o Advancement of women

o Community outreach

o Family benefits

o Workplace issues

o Animal testing

o Military involvement

o Disclosure of information

With the exception of animal testing and military involvement, "more" is
understood to mean better.

INVESTMENT STRATEGY: The Social Responsibility Portfolio invests in a
diversified portfolio of common stocks of companies with social criteria
generally in line with those of its shareholders as determined by survey. While
the Portfolio has the flexibility to invest in all size companies, typically 80%
to 95% of the Portfolio has been invested in large U.S. companies traded on the
New York Stock Exchange, the American Stock Exchange and NASDAQ. The Portfolio
may also use futures and options on market indexes to vary market exposure of
the Portfolio.

SPECIAL RISK FACTORS: The Adviser believes that the primary Portfolio
risk is the effect of a stock market decline on its portfolio of common stocks.
In recent years, the Portfolio has been slightly less volatile than the S&P 500
Index of large stocks and has exhibited about 17% less market-related risk than
the S&P 500 Index according to Morningstar. These measures could be higher in
some future period, however.

A secondary Portfolio risk is the use of exchange-traded, "traditional"
stock index options and futures. These investments help keep the overall market
risk of the Portfolio between 50% and 150% of the broader stock market. The
Adviser believes that its use of these instruments is conservative; it does not
try to leverage overall market risk in the long term. The options and futures
described are not "exotic derivatives" traded over-the-counter for which prices
may not be readily available.

<PAGE> 45

WHO SHOULD INVEST: The Adviser believes that 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 price volatility associated with
common stocks. It is also appropriate for those seeking superior companies from
a social standpoint of "good corporate citizenship." IT IS NOT AN APPROPRIATE
INVESTMENT FOR SHORT-TERM INVESTORS, THOSE TRYING TO TIME THE MARKET OR THOSE
WHO WOULD PANIC DURING A MAJOR MARKET OR PORTFOLIO CORRECTION. (See "Frequent
Trading of Fund Shares" on page 61).

TRANSLATION

What is the Social Screening Process?

The Council on Economic Priorities (CEP) provides Bridgeway with social
data on 760 companies. Bridgeway supplements this data with its own social
research. Stock selection is a four-step process. Bridgeway:

o surveys its shareholders to determine Portfolio weights of the ten social
criteria,

o excludes any industry that a majority of shareholders vote to exclude
(currently tobacco and military),

o ranks the remaining companies from top to bottom according to the
aggregate shareholder weights of ten social criteria, and

o runs the companies in the top fifth of the social ranking (the "cream of
the cream") through its financial models.

In other words, CEP provides the "report card," and shareholders tell us
which subjects are the most important. Please note that only tobacco and
military companies are specifically excluded; other criteria are included on a
relative basis only. For example, a company with a poor record on community
outreach could still be included in the Portfolio if it scored high enough on
the other social criteria.

<PAGE> 46

YEAR BY YEAR % RETURNS AS OF 12/31 OF EACH YEAR

<TABLE>
<CAPTION>
1994(1) 1995 1996 1997 1998 1999(2)
------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Social Responsibility 1.51% 30.27% 16.21% 27.51% 37.79% 11.32%
S&P 500 Index 1.73% 37.53% 22.95% 33.35% 28.58% 12.38%
</TABLE>

(1) From date of inception (8/5/94) Best Quarter : Q4 98, +25.92%
(2) Through June 30, 1999 Worst Quarter: Q3 98, -9.98%

AVERAGE ANNUAL TOTAL % RETURNS AS OF 6/30/99

<TABLE>
<CAPTION>
1 Year 3 Year Since Inception
(8/5/94)
------- ------ ---------------
<S> <C> <C> <C>
Bridgeway Social Responsibility 26.18% 25.90% 25.17%
S&P 500 Index(1) 22.77% 29.12% 27.70%
</TABLE>

(1) The S&P 500 is an unmanaged index of large companies, with dividends
reinvested. Past performance does not guarantee future results.

TRANSLATION

The Social Responsibility Portfolio has outperformed the average growth
and income fund by 3.9% per year since inception with roughly equivalent
short-term risk. However, the Portfolio has underperformed the S&P 500 market
index of large companies by 2.5% per year since inception due to 1) expenses of
1.5% per year, 2) inclusion of some small stocks, which as a group have badly
lagged large stocks, and 3) the more conservative positioning of the Portfolio.
Detailed performance explanations are included in quarterly reports to
shareholders. (Please see the back cover.)

<PAGE> 47

FEES AND EXPENSES: As a fully no-load fund, the Fund does not charge any
fees for maintaining your account or for buying, selling, or exchanging your
shares. Your only fund cost is your share of annual operating expenses. The
following expense example can help you compare costs among funds.

SOCIAL RESPONSIBILITY FEE TABLE

<TABLE>
<S> <C>
SHAREHOLDER FEES (LOADS)
Sales Charge (Load) Imposed on Purchases None
Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None

ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.2%
Distribution (12b-1) Fees None
Other Expenses 1.3%
----
Total Operating Expenses 1.5%
====
</TABLE>

*The figures in the table are based on last fiscal year's expenses. Actual
expenses this fiscal year may be higher or lower.

SOCIAL RESPONSIBILITY EXPENSE EXAMPLE

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Expenses $150 $473 $829 $1,887
</TABLE>

TRANSLATION

Are There "Hidden Fees" Inside the Fund?

Yes. In addition to the operating expenses above, the Portfolio pays
commission costs to brokerage firms to buy and sell Portfolio stocks. Last year,
these costs represented 0.03% of average net assets, or $3 for a $10,000
investment. This is much less than most other actively managed funds. We wish we
could add this information to the table above, but it would go against both
generally accepted accounting rules and industry practice. We choose to disclose
it here.

<PAGE> 48

Are There "Hidden Fees" Outside the Fund?

TRANSLATION

What are the Costs of Fund Ownership?

Separate from the management fee, the Portfolio does reimburse the
Adviser at cost for Fund accounting (calculating daily prices) and transfer
agency costs (keeping up with Fund ownership).

"Other costs" borne by the Fund include audit fees, custodial fees (paid
to the bank which holds Fund assets), state and federal registration fees,
directors' compensation, and legal expenses.

The total of the management, distribution, and "other" expenses is called
"total operating expense." By contract between the Fund and the Adviser, the
maximum total expenses paid by the Fund in any one year cannot exceed 1.5% to
2.0%, depending on performance relative to the S&P 500 Index over the last five
years. As of the September quarter of 1999, portfolio expenses before and after
reimbursements were less than 1.5%. This compares to 1.34% for growth and income
funds and 1.60% and for retail socially screened equity funds as of 6/30/99
according to Morningstar. Cost management is very important at Bridgeway. Please
see http://www.bridgewayfund.com/investme.htm#Cost efficiency: for more details.

<PAGE> 49
BRIDGEWAY FUND, INC. FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

SOCIAL RESPONSIBILITY PORTFOLIO

<TABLE>
<CAPTION>
Year Year Year Year 8/5/94(a)
Ended Ended Ended Ended to
6/30/99 6/30/98 6/30/97 6/30/96 6/30/95
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA(1)
Net Asset Value, beginning of period $21.14(5) $16.21 $14.68 $11.61 $ 9.85
------ ------ ------ ------ ------
Income (Loss) from investment operations(3)
Net Investment income (loss) (0.14) 0.00 0.03 (0.02) 0.07
Net realized and unrealized gain 5.62 5.57 2.31 3.11 1.70
------ ------ ------ ------ ------
Total from investment operations 5.48(4) 5.57 2.34 3.09 1.77
------ ------ ------ ------ ------
Less distributions to shareholders(6)
Net investment income 0.00 (0.01) 0.00 (0.02) (0.01)
Net realized gains (0.17) (0.63) (0.81) 0.00 0.00
------ ------ ------ ------ ------
Total distributions(3) (0.17) (0.64) (0.81) (0.02) (0.01)
------ ------ ------ ------ ------
Net asset value, end of period $26.45 $21.14 $16.21 $14.68 $11.61
====== ====== ====== ====== ======
PORTFOLIO TOTAL RETURN(a)(b) 26.18% 35.30% 16.89% 26.64% 18.92%
S&P 500 INDEX RETURN(b)(c) 22.77% 30.16% 34.70% 26.01% 22.20%
</TABLE>

(a) August 5, 1994 was commencement of operations.

(b) Not annualized for periods less than a year.

See accompanying notes to financial statements.

Numeric footnotes in the table reference explanation in text on the following
page.

TRANSLATION

What is Total Return?

How Does this Record Compare to the Market and Other Funds?

While the Portfolio has underperformed the S&P 500 Index by 2.5% per year
on a cumulative basis, it has done so with less short-term risk. In addition,
the Portfolio has outperformed the average of growth and income funds by 3.9%
per year, with roughly equivalent short-term risk. Past results do not guarantee
future returns.

<PAGE> 50

TRANSLATION

What's the Significance of the "Per Share Data?"

What Do All These Numbers Mean? Why Should I Care?

The source of changes in the "net asset value," also known as the "NAV"
or simply "share price" of the Portfolio is described in the section "per share
data."(1). It does not answer the question, "How much has the value of my
portfolio gone up or down in the last year?" The line labeled "Portfolio Total
Return"(2) relates to that question (See "What is total return?" on the previous
page.)

The second major source of changes in net asset value is "distributions
to shareholders."(6) By federal tax law, mutual funds must distribute income and
gains of the Portfolio to shareholders. For example, in Fiscal Year 1999, we
distributed $0.17(7) per share of realized capital gains (gains from the
appreciation in stocks that we sold) to shareholders. As a result of the
distribution, the net asset value declined by the same amount. Most shareholders
reinvested the dividend to purchase additional shares of the Portfolio. In the
Social Responsibility Portfolio, almost all of the distributions have been from
realized gains, and there has been little net investment income to distribute.

The "total distributions"(8) line can give you an idea of the tax
efficiency of this Portfolio. (However, if you hold shares through a
tax-deferred account such as an IRA, tax efficiency is irrelevant.) To date,
Portfolio taxable distributions equal less than 10% of investment operations.
This is very tax efficient for an active managed mutual fund. The taxable
distributions could be higher than this in any one year, however.

<PAGE> 51

<TABLE>

BRIDGEWAY FUND, INC. FINANCIAL HIGHLIGHTS
- - -----------------------------------------
SOCIAL RESPONSIBILITY PORTFOLIO
-------------------------------

Year Year Year Year 8/5/94(a)
Ended Ended Ended Ended to
6/30/99 6/30/98 6/30/97 6/30/96 6/30/95
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>

RATIOS & SUPPLEMENTAL DATA

Net assets, end of period (in 000s)(1) $2,820 $1,473 $ 638 $ 361 $ 64

Ratio to average net assets:(b)

Expenses after waivers and reimbursements(2) 1.50% 1.50% 1.50% 1.48% 1.46%

Expenses before waivers and reimbursements(3) 2.13% 3.81% 5.81% 16.80% 72.83%

Net investment income (loss) after waivers
and reimbursements(4) (0.60) 0.02% 0.24% (0.17%) 0.90%

Portfolio turnover rate(b),(5) 58.0%(6) 37.8% 35.5% 83.8% 71.7%

- - --------------------------------------------------------------------------------------------------------

(a) August 5, 1994 was commencement of operations.

(b) Not annualized for periods less than a year.

See accompanying notes to financial statements.
Numeric footnotes in the table reference explanation in text below.

</TABLE>

TRANSLATION

What is the Significance of the Other Ratios?

The net worth of the Portfolio is called "net assets."(1)

"Expenses after waivers and reimbursements"(2) are the percentage of your
investment that you pay for the Portfolio's operating expenses. These expenses
are already included (that is, subtracted from) the return of the Portfolio;
they are not billed to you separately.

By contract with the Fund, the Adviser reimburses the Portfolio for
expenses above 1.5%, to 2.0% depending on Portfolio performance relative to the
S&P 500 Index. "Expenses before waivers and reimbursements"(3) indicates the
amount the Portfolio would incur if the Adviser ceased reimbursements in some
future year. While this is highly unlikely, it is theoretically possible. In the
first quarter of Fiscal Year 2000, Portfolio expenses were less than 1.5% and
there were no Portfolio reimbursements.

"Net investment income"(4) is the sum of stock dividends and interest
less operating expenses. It is a more significant number for funds whose
objective is to provide income.

<PAGE> 52

THE ULTRA-LARGE 35 INDEX PORTFOLIO

INVESTMENT OBJECTIVE: To provide a long-term total return of capital,
primarily through capital appreciation, but also some income.

INVESTMENT STRATEGY: The Adviser seeks to achieve this objective by
meeting the total return of the Bridgeway Ultra-Large 35 Index while minimizing
the distribution of capital gains and minimizing costs.

INDEX COMPOSITION: Thirty-five of the largest U.S. companies make up this
index, after excluding a tobacco company and ensuring reasonable industry
diversification.

The Ultra-Large 35 Index is compiled by Bridgeway Capital Management,
Inc., with the needs of shareholders in mind. The Index is rebalanced every two
or three years rather than annually. Index turnover is kept low, and companies
that are no longer "ultra-large" are not completely removed from the Index if
their sale would create a capital gain for the Portfolio. They are designated as
"dormant companies" in both the Index and the Portfolio. Approximately 6% of the
Index is currently dormant. New Portfolio inflows are not invested in these
companies, and their representation in the Index will decline over time.

The Index is roughly equal-weighted; each company carries about the same
Portfolio weight over time. For the Portfolio, equal weighting reduces the
number of portfolio trades, keeps transaction costs low, and improves
diversification within a smaller number of companies. The Index and Portfolio
are both managed with taxable shareholders in mind, although the lean Portfolio
expenses and particular market segment may also make the Portfolio appropriate
for tax-deferred accounts such as IRAs.

WHO SHOULD INVEST: The Adviser believes that this Portfolio is more
appropriate as a long-term investment (at least 5 years, but ideally 10 years or
more) for shareholders who want to invest in large U.S. companies, incur very
low costs, and minimize their own taxable capital gains income. IT IS NOT AN
APPROPRIATE INVESTMENT FOR SHORT-TERM INVESTORS, THOSE TRYING TO TIME THE MARKET
OR THOSE WHO WOULD PANIC DURING A MAJOR MARKET OR PORTFOLIO CORRECTION. (See
"Frequent Trading of Fund Shares" on page 61).

TRANSLATION

What Are the Ultra-Large 35 Companies?

o American Int'l Group

o America Online

o AT&T

o Bank of America

o Bell Atlantic

o Bristol Myers Squibb

o Citigroup

o Chevron

o Cisco Systems

o Dupont

o Dell Computer

o Walt Disney

o Exxon/Mobil

o Ford

o Federal Nat'l Mortgage

o Gillette

o General Electric

o General Motors

o Home Depot

o Hewlett Packard

o IBM

o Intel

o Johnson & Johnson

o Coca-Cola

o Eli Lilly

o Lucent Technologies

o McDonalds

o Merck

o Microsoft

o Pfizer

o Procter & Gamble

o SBC Communications

o Time Warner

o Worldcom

o Wal-Mart

<PAGE> 53

SPECIAL RISK FACTORS: 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, this 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 and aggressive growth portfolios
that the Fund offers.

Similar to other index funds, the actual return of this Portfolio will
likely underperform the Bridgeway Ultra-Large 35 Index by an amount similar 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, keeping Portfolio turnover and transaction expenses low,
strongly discouraging market timers and short-term traders from investing in the
Portfolio, and by the redemption fee. Please see "Redemption Reimbursement Fee"
on page 57.

While ultra-large stocks have historically been less volatile than other
stocks, the Adviser has expressed some concern that recent ultra-large company
valuations may represent a special risk for this Portfolio. For example, as of
June 30, 1999, the Portfolio price-to-earnings ratio (one measure of valuation)
was 39, much higher than historical levels.

PERFORMANCE: The bar chart below shows how the Portfolio's performance
has varied from one year to another. The table below the chart shows how the
Portfolio's average annual returns for one year and since inception compare with
those of a broad-based stock market index. This information is based on past
performance. It is not a prediction of future results.

YEAR BY YEAR % RETURNS AS OF 12/31 OF EACH YEAR

<TABLE>
<CAPTION>
1997(1) 1998 1999(2)
------- ------- -------
<S> <C> <C> <C>
Ultra-Large 35 Index 0.00% 39.11% 14.31%
S&P 500 Index 2.43% 28.00% 12.38%
</TABLE>

(1) From date of inception (6/30/98) Best Quarter for ULI: Q4 98, +25.33%
(2) Through June 30, 1999 Worst Quarter for ULI: Q3 97, -9.02%

<PAGE> 54

AVERAGE ANNUAL TOTAL % RETURNS AS OF 6/30/99

FUND/INDEX 1 YEAR SINCE INCEPTION (8/5/94)
- - ---------- ------ ------------------------
<S> <C> <C>
Bridgeway Ultra-Large 35 Index 30.34% 27.41%

S&P 500 Index(1) 22.77% 22.73%
</TABLE>

(1) The S&P 500 is an index of large companies, with dividends reinvested.
Past performance does not guarantee future results.

TRANSLATION

Ultra-large company performance has been unstoppable in the recent market
environment of large company dominance. A number of trends have supported this
dominance:

Investors continue to invest large sums in large-company index funds,
resulting in increasing the prices of these stocks.

Actively managed institutional funds continue to turn to ultra-large
stocks as a quick way to invest money in the stock market. They are much easier
to trade quickly without "moving the price" adversely.

Investors continue to flock to the perceived safety of larger stocks.

Earnings of many ultra-large companies continue to do well in the recent
low-inflationary environment.

In addition, our Portfolio has a somewhat higher representation of
technology stocks (27%) versus other large company indexes such as the S&P 500
(21%) and the Dow Jones Industrial Average (11%). Technology has done extremely
well in the period since the Portfolio began.

The trends above may or may not continue. The historical average annual
return of large stocks over the last seven decades has been about 10%. Almost
one in three years produced a negative return. Detailed performance explanations
are included in semi-annual reports to shareholders. (See the back cover.)

<PAGE> 55

FEES AND EXPENSES: Bridgeway Fund is fully no-load; it does not charge
any fees for maintaining your account or for buying, selling, or exchanging your
shares. Your only fund cost is your share of annual operating expenses. The
following fee table and expense example can help you compare costs among funds.
As of June 30, 1999, this Portfolio has the lowest expense ratio of any retail
fund in America.

ULTRA-LARGE 35 INDEX FEE TABLE

SHAREHOLDER FEES (LOADS)
<S> <C>
Sales Charge (Load) Imposed on Purchase None
Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fees (See "Redemption Reimbursement Fee" on page 57.) None
Exchange Fee None

ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<S> <C>
Management Fees 0.08%
Distribution (12b-1) Fees None
Other Expenses 0.07%
----
Total Operating Expenses 0.15%
</TABLE>

*The figures in the table are based on the 6/30/99 fiscal year. Actual expenses
for fiscal year 6/30/00 will be the same.

ULTRA-LARGE 35 INDEX EXPENSE EXAMPLE

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Expenses $ 15 $ 47 $ 83 $ 189
</TABLE>

TRANSLATION

Are There "Hidden Fees" Inside the Fund?

Yes. In addition to the operating expenses above, the Portfolio pays
commission costs to brokerage firms to buy and sell Portfolio stocks. Last year,
these costs represented 0.05% of average net assets, or $5 for a $10,000
investment. This is much less than most actively managed funds. We wish we could
add this to the table above, but it would go against both generally accepted
accounting rules and industry practice. We choose to disclose it here.

<PAGE> 56

TRANSLATION

Are There "Hidden Fees" Outside the Fund?

Maybe. The "Translation" below explains the management fee and operating
expense borne by Portfolio investors. In addition, investors may pay fees to
some, though not all, "fund marketplaces" where they purchase shares. Please see
"How to Purchase Shares" on page 60 or call Bridgeway at 800-661-3550 for
details.

TRANSLATION

What are the Costs of Fund Ownership?

All fees to the Adviser are included in the management fee. At just
0.08%, it is among the leanest in the mutual fund industry. As an example, a
0.08% annual fee means that a shareholder with an average $10,000 account pays
$8 each year.

Separate from the management fee, the Portfolio does reimburse the
Adviser at cost for Fund accounting (calculating daily prices) and transfer
agency costs (keeping up with Fund ownership).

The Adviser has negotiated its trading commission down to less than 1/4
the industry average. This is partly because the Adviser uses no soft dollar or
affiliated brokerage arrangements. Under a soft dollar commission arrangement, a
stock broker agrees to provide a benefit to the Fund or Advisor, such as
research, computer terminals, publications, or other services in return for a
higher commission cost to the Fund. These arrangements may benefit the Adviser,
at the expense of the shareholder.

"Other costs" borne by the Fund include audit fees, custodial fees (paid
to the bank which holds Fund assets), state and federal registration fees,
directors' compensation, and legal expenses.

The total of the management, distribution, and "other" expenses is called
"total operating expense." By contract between the Fund and the Adviser, the
maximum total expenses paid by the Fund in any one year cannot exceed 0.15%, the
lowest of any retail fund in America as of 6/30/99. The average expense ratio of
retail large-company index funds was 0.62% on 6/30/99. The average expense ratio
of all domestic equity retail funds was 1.52%, (100 times greater than this
Portfolio). Cost management is very important at Bridgeway. Please see
http://www.bridgewayfund.com/investme.htm#Cost efficiency: for more details.

<PAGE> 57

BRIDGEWAY FUND, INC. FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

ULTRA-LARGE 35 INDEX PORTFOLIO

<TABLE>
<CAPTION>
Year 7/31/97
Ended to
6/30/99 6/30/98
-------- --------
<S> <C> <C>
PER SHARE DATA(1)
Net Asset Value, beginning of period $ 6.10(5) $ 5.00
------- -------
Income (Loss) from investment operations(3)
Net Investment income (loss) 0.07 0.07
Net realized and unrealized gain 1.77 1.03
------- -------
Total from investment operations 1.84(4) 1.10
------- -------
Less distributions to shareholders(6)
Net investment income (0.03)(7) 0.00
Net realized gains 0.00 0.00
------- -------
Total distributions(6) (0.03) 0.00
------- -------
Net asset value, end of period $ 7.91 $ 6.10
------- -------

PORTFOLIO TOTAL RETURN(b,a) 30.30% 22.04%
S&P 500 INDEX RETURN(b,a) 22.77% 20.57%
</TABLE>

(a) August 5, 1994 was commencement of operations.

(b) Not annualized for periods less than a year.

(c) The S&P 500 is an index of large companies, with dividends reinvested. Past
performance does not guarantee future results.

See accompanying notes to financial statements.

Numeric footnotes in the table reference explanations in the text on the
following page.

TRANSLATION

What is Total Return? Is This Record a Good One?

Portfolio total return answers the question, "How much has my investment
gone up or down, assuming I reinvest dividend distributions and don't add or
withdraw money during the year?" The total return data above is presented by
Portfolio fiscal year. Equivalent figures for the S&P 500 Index of large
companies are presented as a market "benchmark" for comparison.

Yes, we have had two wonderful years of total return and we significantly
outperformed the broader market indexes. However, past results do not guarantee
future returns, and we would not expect to "beat the market" in all market
environments. Please see page 50 for a more detailed explanation of performance.

<PAGE> 58

TRANSLATION

What's the Significance of the "Per Share Data?"

What Do All These Numbers Mean? Why Should I Care?

You may need to be an accountant to be interested in the section of this
table labeled, "per share data."(1) It tells the source of changes in the "net
asset value," also known as the "NAV" or simply "price" of the Portfolio. It
does not answer the question, "How much has the value of my portfolio gone up or
down in the last year?" The line labeled "Portfolio Total Return"(2) relates to
that question (See "What is total return?" on the previous page.)

There are two major sources of changes in net asset value. The first is
from "investment operations."(3) For example, for the year ended 6/30/99, the
Portfolio net asset value went up $1.84(4) as a result of investment operations,
a very good year from the beginning net asset value base of $6.10(5). The
investment operations will be a negative number for any period the Portfolio
returns go down. Investment operations is made up of two components: 1) net
investment income (the sum of dividends and interest, less the cost of operating
expenses) and 2) net realized and unrealized gains (a stock's appreciation in
value is "realized" when it is sold; the appreciation in value is "unrealized"
while it remains in the portfolio). The second major source of changes in net
asset value is "distributions to shareholders."(6) By federal tax law, mutual
funds must distribute income and gains of the Portfolio to shareholders. The
only distribution we made in Fiscal Year 1999 was for income (stock dividends
and interest), $0.03(7). The Adviser seeks never to return a capital gain to
Portfolio shareholders, but it may not be successful in all market environments.

The "total distributions"(8) line can give you an idea of the tax
efficiency of this Portfolio. We consider Bridgeway's Ultra-Small Index
Portfolio and Ultra-Large 35 Index Portfolio to be Bridgeway's most tax
efficient portfolios.

<PAGE> 59
BRIDGEWAY FUND, INC. FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------
ULTRA-LARGE 35 INDEX PORTFOLIO
- - ----------------------------------------------------------------------------------------------
Year Ended 6/30/99 7/31/97(a) to 6/30/98
- - ---------------------------------------------- ------------------ ---------------------
<S> <C> <C>
RATIOS & SUPPLEMENTAL DATA

Net assets, end of period (in 000s)(1) $ 4,528 $ 386
Ratio to average net assets:(b)
Expenses after waivers and reimbursements(2) 0.15% 0.15%
Expenses before waivers and reimbursements(3) 0.90% 9.73%
Net investment income (loss) after waivers 1.06% 1.47%
and reimbursements(4)

Portfolio turnover rate (b),(5) 16.6%(6) 64.3%
- - ----------------------------------------------------------------------------------------
</TABLE>

(a) July 31, 1997 was commencement of operations.
(b) annualized for periods less than a year.
See accompanying notes to financial statements.
Numeric footnotes in the table reference explanations in text below.

TRANSLATION

What is the Significance of the Other Ratios?

The net worth of the Portfolio is called "net assets."(1)

"Expenses after waivers and reimbursements" (2) is the percentage of your
investment that you pay for the Portfolio's operating expenses. These expenses
are already included (that is, subtracted from) the return of the Portfolio;
they are not billed to you separately. At the current (maximum) expense rate of
0.15%, the Ultra-Large 35 Index Portfolio is the most efficient retail fund in
America as of 6/30/99.

By contract with the Fund, the Adviser reimburses the Portfolio for
expenses above 0.15%. "Expenses before waivers and reimbursements" (3) indicates
the amount the Portfolio would incur if the Adviser ceased reimbursements in
some future year. While this is extremely unlikely, it is theoretically
possible. "Net investment income" (4) is the sum of stock dividends and interest
less operating expenses. It is a more significant number for funds whose primary
objective is to provide income.

<PAGE> 60

"Portfolio turnover rate"(5) indicates the amount of portfolio holdings
that are bought and sold in a year relative to the average net assets. A
turnover rate of 100% is equivalent to the sale and repurchase of all of the
securities in the portfolio one time during the year. Ultra-Large 35 Index's
recent 17% turnover rate is much lower than the 87% rate among all U.S. stock
market mutual funds, and slightly less than the 21% rate of all retail domestic
index funds. Since funds incur expenses with each trade, portfolio turnover can
become very important. Bridgeway works hard to minimize this cost and believes
that it has among the lowest, if not the lowest commission cost per share in the
industry. Turnover is normally a proxy for tax efficiency of a fund, but this is
not the case with Ultra-Large 35 Index Portfolio, since the vast majority of
stock sales were made to harvest losses for tax purposes. Harvesting losses is a
technique of selling stock holdings which have declined in value, in order to
offset other portfolio gains. For example, although the Portfolio has
appreciated a total of 59% since inception on 7/31/97, it has distributed no
capital gains. Therefore, the Adviser considers that the turnover rate is not a
negative factor for this Portfolio.

ULTRA-LARGE 35 INDEX REDEMPTION REIMBURSEMENT FEE: The Bridgeway index
portfolios are best suited for investors who intend to be long-term
shareholders. Shareholders who redeem frequently or in the height of a market
downturn increase costs for the remaining shareholders.

No such reimbursement fees were charged in the Portfolio's first two
fiscal years.

<PAGE> 61

MANAGEMENT OF THE FUND

Bridgeway Capital Management, Inc. of 5615 Kirby Drive, Suite 518,
Houston Texas 77005-2448, acts as the Investment Adviser. The Fund's Board of
Directors decides on matters of general policy and reviews the activities of the
Fund's Adviser. The Fund's officers conduct and supervise its daily business
operations. The Adviser is a Texas corporation that was organized in 1993 to act
as the Fund's investment adviser. John Montgomery, President of the Fund and the
Adviser has managed the affairs and Portfolios of the Fund since inception. He
is responsible for selecting the securities that each Portfolio purchases and
sells, although he is assisted by other employees who provide him with research
and trading assistance.

The Adviser is responsible for the investment and reinvestment of the
Fund's assets and provides the Fund with:

o executive and other personnel,

o office space and other facilities,

o administrative services, and

o supervision of 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. See the Fund's Statement of Additional Information for
more information about the Fund's Board of Directors, Officers, the Adviser and
the Fund's operating expenses.

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:

o takes part in directed brokerage arrangements,

o pays soft dollar commissions,

o has a brokerage relationship with any affiliated organization,

o will invest in tobacco companies.

TRANSLATION

What's the Big Deal About the "Code of Ethics"?

At Bridgeway, we take ethical issues very seriously. We are willing to
walk away from certain revenue-generating activities to avoid conflicts of
interest between the Fund and its Adviser. We try to ensure that the interests
of the Adviser reflect those of Fund shareholders.

<PAGE> 62

TRANSLATION

Who is the Founder and Portfolio Manager at Bridgeway?

John Montgomery is the founder of Bridgeway Capital Management, Inc. and
investment manager for Bridgeway Fund. He holds bachelor degrees from Swarthmore
College in both engineering and philosophy and graduate degrees from MIT and
Harvard Business School. He worked with computer modeling and quantitative
methods as a research engineer at MIT in the late 70's. Later at Harvard he
investigated methods to apply modeling to portfolio management. John began
applying these methods to his own investments. Over the next six years, this
investment style proved more successful than even John had expected. He left the
transportation industry at the end of 1991 to perform full time research on his
investment models, to study the mutual fund industry, and to write a business
plan for Bridgeway.

Bridgeway Capital Management was incorporated in 1993 and Bridgeway Fund
in 1994. The advisory firm has a very lean cost structure, relying heavily on
computers and a small, but very talented and dedicated team of employees. These
factors have enabled the firm to offer products unique to the mutual fund
industry. Bridgeway Ultra-Small Company and Ultra-Small Index Portfolios are
committed to investing long-term in public companies smaller than any other
mutual fund. As of 6/30/99, Bridgeway Ultra-Large 35 Index Portfolio had the
lowest expense ratio of any retail mutual fund in America.

Bridgeway has an unusual corporate culture with a high energy, fun, but
modest atmosphere. Stressing process and results over titles and status, no
Bridgeway employee, including John, can make more than 7 times the total
compensation of the lowest paid employee. The firm ascribes to four business
values: integrity, investment performance, cost efficiency, and service .

Copies of the Mission Statement are available at our web address
www.bridgewayfund.com/sai.htm#THE MANAGEMENT AGREEMENT, and copies of the Code
of Ethics may be obtained from our web address www.bridgewayfund.com/ethics.htm.
Any shareholder or potential shareholder who feels a policy, action, or
investment of the Fund or Adviser does or may compromise the highest standards
of integrity is encouraged to write or call the Fund President. (See Back
Cover.)

NET ASSET VALUE OR NAV (SHARE PRICE)

The net asset value per share of each Portfolio is the value of the
Portfolio's investments plus other assets, less its liabilities divided by the
number of Portfolio shares outstanding. The value of the Portfolio's securities
is determined by the market value of these securities.

Because the Fund charges no sales fee, the price you pay for shares is
the Portfolio's net asset value (NAV). The Fund is open for business every day
the New York Stock Exchange (NYSE) is open. Every buy or sell order you place
will normally go through at the next share price calculated after your order has

<PAGE> 63

been accepted. The Adviser calculates the share price for each Portfolio at the
end of regular trading on the NYSE on business days, usually 4:00 p.m. eastern
time. If the NYSE begins an after hours trading session, the Board of Directors
will set closing price procedures. Currently, the plan is to use prices based on
the 4:00 p.m. Eastern Time close.

Because foreign markets may be open on days when US. markets are closed,
the value of foreign securities owned by a Portfolio could change on days when
you cannot buy or sell Fund shares. The share price of each Portfolio, however,
will not change until the next time it is calculated.

See "Redemption Reimbursement Fee" on pages 23 and 57 for important
information on redemption fees for the Ultra-Small Index and Ultra-Large 35
Index Portfolios.

DISTRIBUTION OF FUND SHARES

The Adviser pays for fund distribution costs. It may pay up to 0.25% of
the average daily net assets attributable to broker/dealers, registered
representatives, retirement plan consultants, or fund marketplaces that help
distribute the Fund. Any such distribution arrangement must be approved by a
majority of independent Fund directors. 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 costs will not exceed a rate
equal to the lesser of Bridgeway Fund's internal rate, or a rate representative
of a comparable industry average. On October 15, 1996 shareholders approved a
12b-1 Plan whereby the Fund acts as its own distributor, and the Adviser pays
all distribution expenses. The Board has reapproved the Plan each year.

HOW TO PURCHASE SHARES

NEW SHAREHOLDERS

New shareholders of the Fund may purchase shares on a "no-transaction fee
basis" through E*Trade (1-800-786-2575 or www.etrade.com). These purchases may
be made by computer over the Internet, by touch tone phone or by voice response
system. For a $15 per transaction charge, they may also be made through an
E*Trade customer service representative. 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 $75, but do vary and may
change. Currently, several 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). We expect to add more
marketplaces.

The minimum initial investment in any Fund Portfolio is $2,000. The
minimum subsequent investment is determined by the fund marketplace. The Fund
reserves the right to reject any order.

<PAGE> 64

SHAREHOLDERS PRIOR TO JUNE 5, 1998

Shareholders who bought shares of the actively managed Portfolios
directly from the Fund before June 5, 1998, may continue to make direct
investments in any other actively managed Fund Portfolio subject to the minimum
purchase of $2,000 per Portfolio and closing restrictions as outlined elsewhere
in this Prospectus. The minimum subsequent investment is $500.

TAX-SHELTERED RETIREMENT PLANS

Shares of the Fund may be purchased for various types of retirement
plans, including Individual Retirement Plans (IRAs). For more complete
information, contact the marketplaces listed above.

HOW TO REDEEM SHARES

Shareholders of the Fund who purchased shares through marketplaces should
contact those marketplaces for redemption instructions.

Shareholders who purchased shares directly from Bridgeway before June
1998 may redeem shares by telephone if appropriate information has been supplied
on the Account Registration Form. You must call the Fund at 800-661-3550 prior
to the close of the New York Stock Exchange (currently 4:00 p.m. Eastern Time)
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. Payment for
shares redeemed will usually be mailed or wired the day after such shares are
priced. In unusual circumstances this period may be up to 5 business days. Wire
transfers will be charged a fee of $15 subtracted from the proceeds.

Bridgeway direct shareholders wishing to redeem shares in writing may do
so at any time by mailing or delivering written instructions in proper form to:
Bridgeway Fund, Inc. 5615 Kirby Drive, Suite 518, Houston, TX 77005-2448.
Redemption requests by fax or e-mail will not be accepted. The redemption
request must specify the number of shares or dollars to be redeemed and be
signed by all registered owners as their names appear on the account with
signatures medallion guaranteed by a member of a national securities exchange or
a commercial bank. Most commercial banks are part of the medallion program. A
medallion signature guarantee is not the same as a notarization, and an
acknowledgment by a notary public is not an acceptable substitute. The request
will not be accepted unless it contains all required documents in proper form,
as described above. 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.

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

<PAGE> 65

to make additional investments in the Fund. Two times annually is considered
frequent and includes exchanges among Portfolios.

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. The Fund will give these shareholders whose shares are
being redeemed 60 days prior written notice in which to purchase sufficient
shares to avoid such redemption.

REDEMPTION OF VERY LARGE ACCOUNTS

It is important that you call Bridgeway (at least a week in advance)
before you redeem a large dollar amount. We must consider the interests of all
fund shareholders and reserve the right to delay delivery of your redemption
proceeds--up to seven days--if the amount will disrupt a Fund's operation or
performance. If you redeem more than $250,000 worth of Fund shares within any
90-day period, the Fund reserves the right to pay part or all of the redemption
proceeds above $250,000 in kind, i.e., in securities, rather than in cash. If
payment is made in kind, you may incur brokerage commissions if you elect to
sell the securities for cash.

DIVIDENDS, DISTRIBUTIONS AND TAXES

The Fund declares dividends from net investment income and distributions
from net capital gains annually and pays any such dividends and distributions
annually. All dividends and distributions in full and fractional shares of the
Fund will be reinvested in additional shares on the day that the dividend or
distribution is paid. A direct shareholder may submit a written request to pay
the dividend and/or the capital gains distribution to the shareholder in cash.
Shareholders at fund marketplaces should contact the marketplace about their
rules.

HOW DISTRIBUTIONS ARE TAXED

Except for retirement accounts such as IRA, Keogh, and other tax
advantaged accounts, all fund distributions you will receive are generally
taxable to you, regardless of whether you receive them in cash or reinvest them.
They are taxable to you in the year you receive them except that if they are
paid to you in January, they are taxable as if they had been paid the previous
year.

Income dividends and short-term capital gain distributions are generally
taxed as ordinary income. Distributions of other capital gains are generally
taxed as long-term capital gains at rates that will depend on how long the Fund
had held the securities that it sold. The tax treatment of capital gains
distributions will not depend on when you bought your shares or whether you
reinvested your distributions.

<PAGE> 66

HOW TRANSACTIONS ARE TAXED

When you sell your Fund shares, you will generally realize a gain or
loss. These transactions, including exchange transactions between Portfolios,
usually have tax consequences. This will not be the case in tax-advantaged
retirement accounts.

TAX EFFICIENCY

The following discussion is not applicable to shareholders in
tax-deferred accounts, such as IRAs.

An important aspect of fund ownership in a taxable account is the tax
efficiency of the portfolio. A fund may have great performance, but if a large
percentage of that performance is paid in taxes, the purpose of active
management may be defeated. Tax efficiency is the ratio of after-tax total
returns to before-tax total returns. The first column of the following table
illustrates the tax efficiency of each Portfolio. It assumes that a shareholder
was invested in the Portfolio for the full period since inception and had paid
taxes at the current maximum rates of 39.6% for income, 39.6% for short-term
capital gains, and 20% for long-term capital gains (those of more than one
year). 100% tax efficiency means that the shareholder had no taxable
distributions and paid no taxes. This measure of tax efficiency ignores
potential future taxes represented by unrealized gains, stocks which have gone
up in value but have not been sold. The second column is the rank of this tax
efficiency among funds in a similar investment style. A rank of 1 means the tax
efficiency ranked in the top one percent of funds in a category.

<TABLE>
<CAPTION>
% Tax Efficiency 3-year
Portfolio Since Inception Percentile Rank
- - --------- ---------------- ---------------
<S> <C> <C>
Ultra-Small Company ............ 82% 88
Ultra-Small Index .............. 100% 1*
Micro-Cap Limited .............. NA NA
Aggressive Growth .............. 95% 52
Social Responsibility .......... 98% 16
Ultra-Large 35 Index ........... 99% 2*
</TABLE>

*These numbers are preliminary since they are based only on a two-year
period.

Bridgeway pays attention to taxes in all its portfolios. However, the
active management style of Ultra-Small Company, Aggressive Growth, and Micro-Cap
Limited make these portfolios less tax-efficient than our index portfolios.
Social Responsibility is our most tax-efficient, actively managed Portfolio. Our
index portfolios are extremely tax efficient, even among index funds.

The Ultra-Large 35 Index Portfolio has not distributed a capital gain in
the two years since inception; we expect none in the third. It is ranked in the
2nd percentile instead of the 1st because the Portfolio expense ratio is so low.
This means shareholders keep more dividend income, which is taxable.

<PAGE> 67

FOR MORE INFORMATION

Bridgeway's STATEMENT OF ADDITIONAL INFORMATION, contains more detail
about policies and practices of the Fund and its adviser, Bridgeway Capital
Management. It's "the fine print."

SHAREHOLDER REPORTS provide a closer look at the market conditions and
investment strategies that significantly affected the Fund's performance during
the most recent period. They provide details of our performance versus
performance benchmarks, our top ten holdings, a detailed list of holdings twice
annually, and more about Bridgeway's investment strategy. While these letters
are usually a bit long (and sometimes lively), the first two sentences tell you
how the portfolio did in the most recent quarter and the portfolio manager's
assessment of it. You won't get a lot of mumbo jumbo about the economy, claims
of brilliance when it's going well, or whitewashing performance when it's not
going well.

Other documents, for example the CODE OF ETHICS, are also available.

TO CONTACT BRIDGEWAY FOR THESE DOCUMENTS OR FOR YOUR QUESTIONS:

o Consult our website: www.bridgewayfund.com

o E-mail us at: [email protected]

o Write to us at: Bridgeway Fund,Inc

5615 Kirby Drive, Suite 518
Houston, TX 77005-2448

o Call us at: 800-661-3550x5, or in Houston at 713-661-3500x5.

INFORMATION PROVIDED BY THE SECURITIES AND EXCHANGE COMMISSION (SEC)

You can review and copy information about our Fund (including the SAI) at
the SEC's Public Reference Room in Washington D.C. To find out more about this
public service, call the SEC at 1-800 SEC-0330. Reports and other information
about the Fund are also available on the SEC's website
www.sec.gov/cgi-bin/srch-edgar?bridgeway. Also, you can receive copies of this
information, for a fee, by writing the Public Reference Section, Securities and
Exchange Commission, Washington DC 20549-6009.

Bridgeway Fund's Investment Company Act file number is 811-08200.

BRIDGEWAY FUND, INC. INDEPENDENT ACCOUNTANTS
5615 KIRBY DRIVE, SUITE 518 PRICEWATERHOUSECOOPERS LLP
HOUSTON, TX. 77005-2448 1100 LOUISIANA STREET, SUITE 4100
713 661-3500 HOUSTON, TX. 77002
800 661-3550

<PAGE> 68

Part B

Statement of Additional Information

<PAGE> 69

BRIDGEWAY FUND, INC.

Statement of Additional Information

Dated October 31, 1999

This Statement of Additional Information (SAI) is not a prospectus, and it
should be read in conjunction with the prospectus of Bridgeway Fund, Inc. (the
"Fund"), dated October 31, 1999, which incorporates this document by reference.
A copy of the prospectus may be obtained directly from the Fund, which acts as
the distributor of its own shares, at 5615 Kirby Drive, Suite 518, Houston,
Texas 77005-2448, telephone 800-661-3550 or in Houston 713-661-3500 or from our
web site at www.bridgewayfund.com.

TABLE OF CONTENTS

Cross-reference
to page in the
Prospectus
Page ----------
----
<S> <C> <C>
Investment Objectives and Policies 2 2
Risk Factors 3 5, 15, 24, 33, 41, 49
Investment Restrictions 5 4
U.S. Government Securities 7 -
Foreign Securities 7 4
New Issues and Closed End Funds 7 4
Management 7 58
The Management Agreement 8 -
Security Selection Process 13 5, 14, 24, 33, 41, 49
Disclaimer-CRSP 13 -
Portfolio Transactions and Brokerage 13 -
Net Asset Value 14 59
Redemption in Kind 15 61
Taxation 15 62
Dividends and Distributions 15 62
Performance Information 16 7, 17, 26, 35, 43, 50
Allocation of Trades to Clients 17 NA
General Information 17 2, 58
Financial Statements 19 -
</TABLE>

<PAGE> 70

INVESTMENT OBJECTIVES 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. Bridgeway Capital
Management, Inc. is the Investment Adviser (hereinafter referred to by name or
as the "Manager", or the "Adviser") for the six Portfolios. 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. There can be no assurance that the Portfolios will achieve
their investment objectives. No form of fundamental or technical analysis,
including that employed by the Adviser in Bridgeway's actively managed
(non-"index") portfolios, has been proven conclusively to provide a risk
adjusted excess rate of return on a consistent basis.

The Adviser may engage in "tax management" of each Bridgeway portfolio, when it
appears to be without significant detriment to shareholders of non-taxable
accounts. This practice will sometimes increase Portfolio turnover. The Adviser
uses the full breadth of its tax management tools only in the two index
portfolios. Among the actively managed portfolios, Social Responsibility is
relatively tax efficient. Please see the "Tax Efficiency" section of the
Prospectus for the relative tax efficiency of each Portfolio and for more
details.

The Portfolios' investment policies are described in the Fund's prospectus.
Additional disclosure appears below.

The Aggressive Growth and Social Responsibility Portfolios 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" in the Prospectus and this Statement of Additional
Information. Normally, these Portfolios 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 (Aggressive Growth Portfolio only),
or may be as high as 150% of the market as measured by the estimated portfolio
beta. 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. "Negative correlation to the market" means that if
the market goes up, the value of the portfolio goes down. 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 Adviser may use up to 5% of the Aggressive Growth Portfolio's net assets to
establish positions in commodities futures and options, except that the
aggregate initial margins and premiums required to establish such positions in
any one commodity may not exceed 2% of net assets. Subject to these two limiting
constraints and applicable laws, this Portfolio (only) may invest in commodity
futures and options for the purpose of diversification in line with the stated
portfolio objective.

The Ultra-Small Company, 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

<PAGE> 71

represented by the futures did not exceed either the amount of portfolio cash.
In no case will the use of futures in this way exceed 35% of Portfolio total
assets.

The Ultra-Small Company Portfolio will invest at least 80% of assets in
ultra-small companies based on company size at the time of purchase. Likewise,
Micro-Cap Limited Portfolio will invest at least 80% of assets in micro-cap (or
smaller) companies at the time of purchase. Micro-Cap Limited will only
periodically invest in ultra-small companies, since the Ultra-Small Company
Portfolio has "right of first refusal" over Micro-Cap Limited on all ultra-small
companies identified as potential buys.

RISK FACTORS

A discussion of risk for each of the Fund portfolios appears in the prospectus.
Because the Ultra-Small Company, Ultra-Small Index, and Micro-Cap Limited
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 9 and 10 Portfolios and Ibbotson
Associates, Stocks, Bonds, Bills, and Inflation, 1999 Yearbook.

Short-term Risk

Table A below indicates that the short-term volatility of ultra-small stocks (as
represented by the 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 that exhibit low
short-term volatility as "safe" or "conservative" and investments that exhibit
higher short-term volatility as "risky." Because of high volatility, it would be
unwise to invest any money in ultra-small stocks or micro-cap stocks (or even in
large stocks) which an investor needs in a one year time frame. 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 Portfolio, or Micro-Cap Limited Portfolio.

Table A also indicates that over longer time periods, investors have been
compensated for higher short-term risk with commensurably higher returns.

Table A
Short-term Risk Characteristics of Various Asset Classes (1926-1998)

Govt. Corp. Large Small Ultra-Small
T-Bills Bonds Bonds Stocks Stocks Stocks
<S> <C> <C> <C> <C> <C> <C>
Avg. Annual Return 3.7% 5.0% 5.8% 11.2% 11.7% 13.4%
Std. Deviation 3.2% 9.2% 8.5% 20.3% 33.8% 46.2%
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 (1940-1998) NA -9.6% -8.1% -26.5% -30.9% -27.8%
% of 1-year declines 0% 28% 23% 29% 30% 30%
% of 3-year declines 0% 15% 13% 13% 21% 18%
% of 5-year declines 0% 9% 5% 11% 14% 14%
</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 time frames. Assets
that 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

<PAGE> 72

assets along with the percentage of 16-year periods from 1926 to 1996 for which
returns did not keep up with inflation. On this basis, stocks do better than
T-Bills and bonds, but ultra-small stocks especially shine. While ultra-small
stocks have historically declined farther in a downturn, they have also
generally come back faster after a decline. However, past performance may not be
predictive of future results. Our overall conclusion is that ultra-small stocks
may be too risky for short-term investments, but are an excellent hedge against
long-term inflation for an investor willing to put up with the year-to-year
volatility one will inevitably experience over any 16-year period.

Table B
Long-term Risk Characteristics of Various Asset Classes
ADJUSTED FOR INFLATION (1926-1996)
<TABLE>
<CAPTION>

Govt. Corp. Large Small Ultra-Small
T-Bills Bonds Bonds Stocks Stocks Stocks
<S> <C> <C> <C> <C> <C> <C>
Worst 16-year period -43.9% -49.4% -46.3% -14.6% -4.5% +10.0%
% 16-year declines 28.0% 46.0% 35.0% 1.0% 1.0% 0.0%
</TABLE>

There are special factors to consider relating to investing in the Aggressive
Growth and the Social Responsibility Portfolios. The Aggressive Growth Portfolio
and the Social Responsibility Portfolio may 1) borrow money from banks up to 50%
of the net assets of the respective portfolios, and 2) purchase and sell futures
and options on stock indexes,(and for Aggressive Growth only) also interest rate
and currency instruments, among others (see "Investment Techniques" in the
Prospectus). Using borrowed funds for investment purposes is called "leveraging"
and increases the risk of loss or gain in the value of the Portfolios' assets
and the net asset value of their 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" that have been
in operation less than three years, engage in short-term trading, invest up to
10% of its assets in foreign securities and American Depository Receipts (ADR's)
listed on American exchanges, invest any amount less than 25% of its portfolio
in a single security, invest up to 5% of portfolio assets in a closed-end
investment company, lend portfolio securities and engage in short sale
transactions either against the box or by shorting securities of other issuers.
The Social Responsibility Portfolio may purchase the same type of securities and
utilize the same investment techniques, except that it will only enter into
short sale transactions against the box, will not invest in closed-end
investment companies, and will not lend portfolio securities. These investment
techniques may subject an investor to greater than average risks and costs.

Foreign securities may be affected by the strength of foreign currencies
relative to the U.S. dollar, or by political or economic developments in foreign
countries. Consequently, they may be more volatile than U.S. securities. Short
sale transactions, while limited to 20% of total assets and fully collateralized
by cash in segregated accounts, also represent potentially higher risk for
Aggressive Growth shareholders, since the maximum gain is 100% of the initial
collateralized amount, but there is no theoretical maximum loss. The Aggressive
Growth Portfolio will maintain cash reserves ("100% coverage") equal to the
market value of any short positions for which it does not already own shares.
These cash reserves may be invested in money market or short term Treasury
securities held by the Fund's custodian or broker or both.

Shareholders of the Aggressive Growth, Ultra-Small Index, 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 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 techniques used here would reduce
losses during a

4
<PAGE> 73

time of general stock market decline, if the Fund had previously sold futures or
bought puts on stock indexes or entered into short positions in individual
securities offsetting some portion of the market risk.

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 risk as indicated by statistical models. (The
Fund will not sell "uncovered" calls.) The Adviser will use these instruments to
attempt to maintain a more constant level of risk as measured by certain
statistical indicators. In addition to the use of futures and options for
hedging as described above, the Aggressive Growth Portfolio 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 non hedging 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.

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, and Micro-Cap Limited, and Aggressive
Growth Portfolios. The Adviser manages this risk

o in the Micro-Cap Limited by its low closing commitment,
o in Aggressive Growth by limiting exposure to any one security,
o in Ultra-Small Index by strongly discouraging investment by
market timers and other investors who would sell in a market
downturn, and
o in all Portfolios by maintaining some very liquid stocks.

Portfolio Turnover Rate Considerations

In the Aggressive Growth Portfolio, portfolio turnover 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. During fiscal 1999, this
Portfolio's turnover rate was 211%.

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 (1) 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 (2) 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.

<PAGE> 74

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 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
that 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 their portfolio securities to others on a fully collateralized basis.

8. Make investments for the purpose of exercising control or
management.

9. Act as underwriter (except to the extent the Fund may be deemed to
be an underwriter in connection with the sale of securities in the Fund's
investment portfolio.) (This restriction in no way prevents the Fund from acting
as distributor of its own shares pursuant to a 12b-1 Plan adopted by
shareholders on October 15, 1996.)

10. Invest 25% or more of its total assets (calculated at the time of
purchase and taken at market value) in any one industry.

11. As to 75% of the value of its total assets, invest more than 5% of
the value of its total assets in the securities of any one issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities), or purchase more than 10% of all outstanding voting
securities of any one issuer.

The Fund observes the following restrictions as a matter of operating but not
fundamental policy, pursuant to positions taken by federal and state regulatory
authorities:

The Fund may not:

12. Purchase any security if as a result the Fund would then hold more
than 10% of any class of securities of an issuer (taking all common stock issues
as a single class, all preferred stock issues as a single class, and all debt
issues as a single class).

13. Invest in securities of any issuer if, to the knowledge of the
Fund, any officer or director of the Fund or of the Adviser owns more than 1/2
of 1% of the outstanding securities of such issuer, and such directors who own
more than 1/2 of 1% own in the aggregate more than 5% of the outstanding
securities of such issuer.

14. Invest more than 5% of the value of its net assets in warrants
(included in that amount, but not to exceed 2% of the value of the Fund's net
assets, may be warrants which are not listed on the New York or American Stock
Exchange). However, the Ultra-Small Company, Ultra-Small Index, Micro-Cap
Limited and Ultra-Large 35 Index Portfolios may not purchase any warrants.

<PAGE> 75

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 that 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; (9) foreign withholding taxes; (10)
political, economic, and similar risks, including expropriation and
nationalization; (11) different accounting, auditing, and financial standards;
(12) price volatility; and 13) reduced liquidity in foreign markets where the
securities also trade. While some of these risks are reduced by investing only
in ADR's and foreign securities listed on American exchanges, even these foreign
securities may carry substantial incremental risk.

NEW ISSUES AND CLOSED END FUNDS

The Fund may invest up to 5% of total assets in the securities of "unseasoned
issuers" 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 issuers" which 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

<PAGE> 76

Position with the
Fund Principal Occupation
<S> <C> <C>
John N. R. Montgomery* President and President of the Fund since 11/93 and the Adviser since
Director 7/93.

Karen S. Gerstner Director Attorney and partner, Davis Ridout Jones and Gerstner since
2/99. Prior to that she was an attorney and partner, Dinkins Kelly
Lenox Gerstner & Lamb, LLP Houston, Texas.

Miles Douglas Harper, III Director Gainer, Donnelly, and Desroches since 1/99. Prior to that he
was Vice President, Wood, Harper, PC, a CPA firm in Houston, Texas,
since 2/1991.

Glen Feagins Treasurer Full time employee of Bridgeway Capital Management since
1995. Self-employed consultant in the mutual fund industry and employee
of Bridgeway Capital Management since 1994.

Joanna Schima Secretary Employee of Bridgeway Capital Management since 1993.
</TABLE>

*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 5615 Kirby
Drive, Suite 518, Houston, Texas, 77005-2448.

The Fund pays fees of $750 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 1999, the directors received the
following compensation:

Aggregate Pension or Estimated Annual
Compensation Retirement Benefits Upon Total
from Fund Benefits Retirement Compensation
Name of Director Accrued from the Fund
<S> <C> <C> <C> <C>
Karen Gerstner $4,000 N/A N/A $4,000(1)
Miles Douglas Harper, III $4,000 N/A N/A $4,000(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
(the "Agreement") dated May 26, 1994; a second Investment Management Agreement
dated May 26, 1997 addresses the management of the Ultra-Small Index Portfolio
and the Ultra-Large 35 Index

<PAGE> 77

Portfolio; a third Investment Management Agreement dated June 3, 1998 addresses
the management of the Micro-Cap Limited Portfolio. On April 28, 1999, the three
Agreements were extended for another year by the Board of Directors. On August
18, 1999 the Agreements were amended to incorporate the following expense
limitation provisions that had previously been an undertaking of the Adviser.

The Adviser will reimburse expenses, if necessary, to ensure expense ratios do
not exceed the following fiscal year ratios:

<TABLE>

<S> <C>
Ultra-Small Company 2.0%
Aggressive Growth 2.0%
Social Responsibility* 1.5%
Ultra-Small Index 0.75%
Ultra-Large 35 Index 0.15%
Micro-Cap Limited 1.9%
</TABLE>

* For the Social Responsibility Portfolio only, if the performance
adjustment portion of the management fee is positive, then the expense
ratio will be reimbursed to the level of 1.5% plus the performance
adjustment up to a maximum expense ratio of 2.0%.

The Adviser is a Texas corporation organized in 1993 to act as Adviser to the
Fund and is controlled by Mr. John N. R. Montgomery and his family. 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 is assisted by other employees who provide him with research and
trading assistance. He has graduate degrees from both the Massachusetts
Institute of Technology and Harvard Graduate School of Business Administration.
Mr. Montgomery was a research engineer/project manager at the Massachusetts
Institute of Technology, served as an executive with transportation agencies in
North Carolina and Texas, and founded Bridgeway Capital Management, Inc. in
July, 1993.

Under all of the Agreements, the Adviser provides a continuous investment
program for the Portfolios of the Fund by placing orders to buy, sell or hold
particular securities. The Adviser also supervises all matters relating to the
operation of the Fund, such as corporate officers, clerical staff, office space,
equipment and services.

As compensation for advisory services rendered to the Ultra-Small Index and
Ultra-Large 35 Index Portfolios, and the charges and expenses assumed and to be
paid by the Adviser as described above, these Portfolios pay the Adviser a base
fee computed and payable on or promptly after the last market day of each month
at the following annual rate:

.5% of the value of the Ultra-Small Index Portfolio's average daily net
assets and
.08% of the value of the Ultra-Large 35 Index Portfolio's average daily
net assets.

As compensation for its services rendered and the charges and expenses assumed
and to be paid by the Adviser as described above, the Aggressive Growth, Social
Responsibility, Ultra-Small Company and Micro-Cap Limited Portfolios pay the
Adviser a base fee computed and payable on or promptly after the last market day
of each month at the following annual rate:

.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 a 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.

<PAGE> 78

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
that such period bears to a full month.

The Aggressive Growth, Social Responsibility and Micro-Cap Limited Portfolios
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 the Fund'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 is the
capitalization weighted 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
4.67%(Aggressive Growth and Social Responsibility) and 2.8% (Micro-Cap Limited)
of the difference between the performance of the Portfolios and that of the
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 Portfolio performance will be the percentage increase
(or decrease) of the portfolio net asset value per share over the performance
period and will be calculated as the sum of: 1) the change in the portfolio unit
value during such period, 2) the unit value of portfolio distributions from
income or capital gains (long or short term) having an ex-dividend date
occurring within the performance period and assumed to have been reinvested at
the net asset value on ex-date, and 3) the unit value of capital gains taxes
paid or accrued during the performance period of undistributed realized capital
gains, if any. Thus, the Fund performance will be in accordance with SEC
standardized total return formula.

The adjustment to the Basic Advisory Fee will not be cumulative. For example, an
increased fee could 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.

As indicated above, the Fund's expenses (including the monthly Basic Advisory
fee) will be accrued daily. The performance adjustment for each performance fee
period will be computed monthly and accrued daily in the subsequent monthly
period and taken into account in computing the daily net asset value of a Fund
Portfolio's share. However, the expenses in excess of any maximum expense
limitation that is assumed by the Fund's Adviser if any, shall not be accrued
for the purpose of computing the daily net asset value of a Fund share.

The performance rate adjustment for the Aggressive Growth and Social
Responsibility Portfolios will be calculated as follows during the initial five
year period:

<PAGE> 79

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 (August 5, 1994). 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.

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 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, 1998 through June 30, 1999 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>
Waived
Advisory Fee Expense Advisory Waived
Portfolio Per Contract Reimbursement Fees Accounting Fee
- - --------- ------------ ------------- ---- --------------
<S> <C> <C> <C> <C>
Ultra-Small Company $495,000 $ 0 $ 86,675 $ 0
Ultra-Small Index $ 6,753 $ 8,015 $ 6,753 $ 7,861
Aggressive Growth $ 14,577 $ 0 $ 0 $ 0
Social Responsibility $ 3,966 $ 0 $ 3,966 $ 8,552
Ultra-Large 35 Index $ 1,754 $ 6,444 $ 1,754 $ 8,160
Micro-Cap Limited $ 99,314 $ 0 $ 0 $ 0
</TABLE>

The Net Advisory Fees were paid at the end of each month 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 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) 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.

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

<PAGE> 80

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 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, March 19,1997, and Feb. 27, 1998, and amended on April 30, 1997 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 continuation of the
current contracts was approved on April 28, 1999 for another year, and they will
continue in effect through June 30, 2000. If not terminated, the Agreement will
continue automatically for successive annual periods, provided that such
continuance is specifically approved at least annually (1) by a majority vote of
the independent Directors cast in person at a meeting called for the purpose of
voting on such approval, and (2) 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 58 of the
prospectus, the Adviser has a unique mission statement that sets it apart from
others in the industry:

OUR MISSION is to:

o oppose and alleviate the effects of genocide and oppression,
o support Christian service, o nurture educational causes, and
o 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:

o uphold the highest standards of INTEGRITY.
o maintain a long term risk-adjusted investment PERFORMANCE
RECORD in the top 5% of investment advisers,*
o provide extraordinary SERVICE QUALITY,
o achieve a superior (efficient) COST structure, and

OUR GREATEST RESOURCE is people. Recognizing this, we strive to:

o create a positive, fun, and challenging atmosphere,
o provide fair compensation commensurate with performance,
o give regular, peer feedback,
o spend resources lavishly on hiring and training, and
o value the family.

*The Adviser can not promise future performance levels, nor do past results
guarantee future returns. However, the Adviser and the Fund have committed to
clearly communicating performance versus industry benchmarks in each quarterly
report to shareholders.

The Adviser is also committed to donating a majority of its own investment
advisory fee profits to charitable and non-profit organizations. To maximize
this objective, the adviser seeks a superior cost structure. There are no
expensive perks or luxurious offices. The quantitative investment methods used
do not require a large research staff. Employees are paid commensurate with
performance and market salary

<PAGE> 81

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.

SECURITY SELECTION PROCESS

The equity securities in which the Fund invests consist of common stock,
although the Fund reserves the right to purchase securities having
characteristics of common stocks, such as convertible preferred stocks,
convertible debt securities or warrants, if such securities are deemed to be
significantly undervalued and their purchase is appropriate in furtherance of
each Portfolio's objective as determined by the Adviser.

The rating of any convertible preferred stocks, convertible debt, or other debt
securities held by the Fund will be in the highest three levels of
"investment-grade," that is, rated A or better by either Moody's Investors
Service, Inc. or Standard & Poor's Corporation, or, if unrated, judged to be of
equivalent quality as determined by the Adviser. The Fund may also invest in the
following debt securities: 1) those which are direct obligations of the U.S.
Treasury (e.g. Treasury bonds or bills), 2) those supported by the full faith
and credit of the United States (e.g. "GNMA" certificates) and 3) those
supported by the right of the issuer to borrow from the U.S. Treasury (e.g.
"FNMA" securities).

It is expected that short-term money market securities would normally represent
less than 10% of the Fund's total assets. However, in the event future economic
or financial conditions adversely affect equity securities of the type described
above, the Fund may take a temporary, defensive investment position and invest
all or part of its assets in such short-term money market securities. These
short-term instruments include securities issued or guaranteed by the U.S.
Government and agencies thereof.

DISCLAIMER--CENTER FOR RESEARCH IN SECURITIES PRICES

Bridgeway Ultra-Small Index Portfolio is not sponsored, sold, promoted, or
endorsed by University of Chicago's Center for Research in Securities Prices
(CRSP), the organization which created and maintains the CRSP Cap-Based
Portfolio 10 Index. CRSP makes no representation or warranty, express or
implied, about the advisability of investing in securities generally, or in any
Bridgeway Fund portfolio specifically. CRSP has no obligation or liability with
respect to the Fund portfolio or its shareholders.

PORTFOLIO TRANSACTIONS AND BROKERAGE

For the purchase and the sale of securities held in the portfolios of the Fund,
the Adviser shall select broker-dealers ("brokers") that, in its judgment, will
provide "best execution", i.e., prompt and efficient execution at the most
favorable securities price. In making such selection, the Adviser is authorized
by the Management Agreement to consider the reliability, integrity and financial
condition of the broker.

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. The Adviser shall be prepared
to show that commissions paid (1) were for services contemplated by the
Management Agreement; and (2) were for services which provide lawful and
appropriate assistance

<PAGE> 82

to its decision-making process; and (3) 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 vast majority of Fund brokerage services are placed on the basis of best
price and execution. Rarely, a broker will bring information to the Adviser that
represents valuable additional information, usually on a security already owned
by the Fund. In this case, the Fund may pay the normal institutional brokerage
rate, which is significantly higher than the deeply discounted rate that the
Fund normally pays. The services discussed above may be in written form or
through direct contact with individuals In its last fiscal year ending June 30,
1999, the Fund's Portfolios paid brokerage commissions totaling $83,058, as
follows:

Brokerage
Portfolio Commissions Paid
<S> <C>
Ultra-Small Company $56,559
Ultra-Small Index $1,426
Micro-Cap Limited $14,008
Aggressive Growth $9,779
Social Responsibility $635
Ultra-Large 35 Index $652
</TABLE>

Each Portfolio paid the same or less than the prior fiscal year, except
Ultra-Large 35 Index (which grew in size by more than ten-fold) and Micro-Cap
Limited (which was new). These commission costs reflect the Adviser's goal to
pursue cost efficiency.

It is the Adviser's present policy is to (1) conduct essentially all of its own
financial research and (2) not to pay soft dollar commissions of any kind. The
Adviser will inform the Fund's 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, Martin Luther King 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

<PAGE> 83

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 gains) and net capital
gains that are 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.

<PAGE> 84

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 printed materials,
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)(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 + 1)(6) - 1]
---
cd

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.

<PAGE> 85

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"), Mutual Funds Magazine, 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.

ALLOCATION OF TRADES TO CLIENTS

The Adviser seeks to minimize trading cost (commission and execution cost)
without unfairly favoring any one client. The Adviser's clients include the six
portfolios of Bridgeway Fund and private clients whose assets recently totaled
about $15 million. Unlike Bridgeway Fund, not all clients have access to all
brokers, since this would generally cost the client 0.25% annually in custodian
fees. To avoid this expense for non-Fund clients, and to provide for an
allocation of trades which is fast, fair, and documented, the Adviser will
allocate trades as follows:

1. When the Adviser has access to perceived superior trading at Instinet (or
other trading network), it may execute trades at this network for all
clients who have an account with Bridgeway's custodian. Other (broker
specific) clients may not receive as good a price, but this may be offset
by a lower (zero) custodian cost to them.

2. When the Adviser can obtain the same price for all clients, the allocation
is fair. The Adviser will not document such trades separately.

3. When different brokers execute trades on the same day at different prices,
or across multiple trading days, the Adviser will favor clients on a
rotating basis. The Advisor will document this rotation in a separate file
which includes the trade date, security, and client at the top of the
rotation list. The prices received will not be reconciled or averaged
between separate clients.

4. However, if the trade is a sell and a client has the opportunity to take a
tax loss on a tax lot that will become long-term soon, this client or
clients will get priority overriding procedure number 3. For purposes of
this procedure, "soon" will mean the length of time the Adviser believes is
needed to complete the trade.

Procedure 1 will frequently, but not always override procedure 3.

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

<PAGE> 86

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. 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. 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.

PricewaterhouseCoopers 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 Statement of Additional Information.

The following individuals own more than 5% of the outstanding shares of each
portfolio of the Fund as of June 30, 1999.

Percentage Ownership
----------------------------------------------------------------------------
Aggres- Social Ultra- Ultra- Ultra- Micro-
sive Respon- Small Small Large 35 Cap Fund
Name Address Growth sibility Comp. Index Index Limited Total
- - ---- ------- ------ -------- ----- ----- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Donaldson, Lufkin & P. O. Box 2052 Jersey 6.2% 7.1% 1.6%
Jenrette City,
Securities Corp. NJ 07303

E*Trade Securities Four Embarcadero Pl., 5.6% 17.9% 11.7% 20.3% 6.6%
2400 Geng Rd
Palo Alto,
CA 94303

Kenneth Kern 4444 Richmond 6.2% 1.7%
Houston, TX 77027

National Financial One World Fin'l Center 10.1% 39.0% 10.8% 25.7% 55.6% 20.7% 17.5%
Services Corp.
New York,
NY 10281

National Investors 55 Water Street, 32nd 5.0% 47.8% 23.4% 21.6% 10.5%
Services Inc. Floor
New York, NY
10041-3299

William Wallace 1500 West 6.7% 1.0%
Kennedy Rd
Lake Forest,
IL 60045
---- ---- ---- ---- ---- ---- ----
Total above 23.0% 49.6% 10.8% 97.6% 97.8% 62.6% 37.0%

All officers/directors 0.7% 1.2% 0.3% 0.0% 1.1% 0.0% 0.0%

</TABLE>

<PAGE> 87

FINANCIAL STATEMENTS

The Fund's 1999 Annual Report to Shareholders was mailed to shareholders on
August 30, 1999; it will be sent to any other interested party upon written
request to the Fund. It can also be located at the Fund's email address
www.bridgewayfund.com.

<PAGE> 88

Part C

Other Information

<PAGE> 89

BRIDGEWAY FUND, INC.

Part C

OTHER INFORMATION

<TABLE>

<S> <C> <C>
Item 23. Exhibits

(a) Articles of Incorporation (Incorporated by reference)

NONE

(b) By-laws of Registrant (Incorporated by reference)

NONE

(d) Investment Advisory Contracts

1 - Management Contract dated August 18, 1999, between
Bridgeway Fund, Inc and Bridgeway Capital Management, Inc.

(e) Underwriting Contracts

NONE

(f) Bonus or Profit Sharing Contracts

NONE

(g) Custodian Agreements

NONE

(h) Other Material Contracts

NONE

(i) Legal Opinion

1 - Opinion of James H. Ellis

(j) Other Opinions

1 - Consent of PricewaterhouseCoopers LLP

(k) Omitted Financial Statements

NONE

(l) Initial Capital Agreements

NONE

(m) Rule 12b-1 Plan

NONE

(n) Rule 18f-3 Plan

NONE

Item 24. Persons controlled by or under Common Control with Registrant

NONE
</TABLE>

<PAGE> 90
Item 25. 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 26. 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 27. Principal Underwriters

Bridgeway Fund is the distributor of its own securities.

Item 28. Location of Accounts and Records

Accounts and Records of the Registrant are maintained at the offices of
the Registrant, its Adviser and Distributor at 5615 Kirby Drive, Suite 518,
Houston, TX 77005-2448. Custody records are maintained at the offices of the
Registrant's Custodian Bank, Compass Bank at P O Box 4886, Houston, Texas 77210.

Item 29. 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 30. Undertakings Incorporated by reference.

Incorporated by reference.

<PAGE> 91
[BRIDGEWAY LOGO]

August 27, 1999

Dear Ultra-Small Company Shareholder,

The quarterly picture: The total return of our Portfolio in the June quarter was
12.5%. While it's pretty hard to find fault with a double-digit quarterly
return, especially one which beat two-thirds of all domestic stock funds, we
underperformed our CRSP Index benchmark by two percentage points. I am not happy
about underperforming our primary benchmark.

The fiscal year in review: In the September quarter of Fiscal Year 1999, we
endured the worst ultra-small bear market since 1974. We were down 27% in the
quarter alone, and down much further from our high peak of April 22 earlier in
the year. The quarter was followed by our best quarter since inception, up 16%.
We beat our CRSP Index benchmark, but it wasn't nearly enough to get us back to
the previous all-time high. In the March quarter, ultra-small companies,
especially value-oriented ones, did poorly again. (Value companies are those
priced cheaply relative to some financial measures of worth.) Our Portfolio was
in the middle of the pack of small-company value funds. In the June quarter,
some of our companies sparked back to life, but still not enough to return us to
the high of last year. We finished Fiscal Year 1999 with our first negative
fiscal year return in five years, down 14.5%. This was the first time in four
years that we underperformed the CRSP Index of ultra-small companies.

Working our way back: The figure in the upper right hand corner of this page
indicates we are 45% of the way back to our all-time high (dividend adjusted)
price of $20.58 (net asset value per share). This has taken nine months. The
average time it has taken ultra-small stocks as an asset class to return to the
former peak after a correction is six months. The longest it has taken is three
and a half years.

The five year picture: As bad as last year looks, we are still beating our
benchmark of most similar size companies by 3 1/2% per year since inception five
years ago. I don't find this performance very exciting (my goal is higher), but
measured this way, it is something only 5% of domestic equity funds have
achieved.

The graph below presents the quarterly performance of the Ultra-Small Company
Portfolio relative to our benchmarks. While we continue to lead our market
benchmarks, the last year cost us our lead over other small-cap funds.

GROWTH OF $10,000 INVESTED IN VARIOUS FUNDS AND INDEXES FROM 8/5/94
(INCEPTION) TO 6/30/99

[CHART]

<TABLE>
<CAPTION>
-----------------------------------------
Fund/Index Name Total Value
-----------------------------------------
<S> <C>
Bridgeway Ultra-Small
Company Portfolio $21,484
-----------------------------------------
Lipper Small Company
Funds $22,241
-----------------------------------------
Russell 2000 Index $20,102
-----------------------------------------
CRSP Cap-based
Portfolio 10 Index $18,590
-----------------------------------------
</TABLE>

<PAGE> 92

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

<TABLE>
<CAPTION>
June Qtr. 1 Year Life-to-Date
4/1/99 7/1/98 8/5/94 to
to 6/30/99 to 6/30/99 6/30/1999(4)
---------- ---------- ------------
<S> <C> <C> <C>
Ultra-Small Company Portfolio 12.5% -14.5% 16.9%
Lipper Small-Cap Stock Funds(1) 16.0% 3.1% 17.7%
Russell 2000 (small companies)(2) 15.6% 1.5% 15.3%
CRSP Cap-Based Portfolio 10 Index(3) 14.6% -4.1% 13.5%
</TABLE>

(1) The Lipper Small-Cap Stock Funds is an index of small-company funds
compiled by Lipper Analytical Service, Inc. (2) The Russell 2000 Index is
an unmanaged index of small companies (with dividends reinvested). This
latter index is the most widely tracked index among small company funds,
but it is comprised of companies roughly 10 times larger than those of the
CRSP Index and the Bridgeway Portfolio. (3) The CRSP Cap-Based Portfolio 10
Index is an unmanaged index of 2409 of the smallest publicly traded U.S.
stocks (with dividends reinvested) as reported by the Center for Research
on Security Prices. (4) Life-to-date returns are annualized; quarterly
returns are not annualized. Past performance does not guarantee future
returns.

Detailed Explanation of Fiscal Year performance--Large Company Dominance

TRANSLATION: 1999 is the sixth consecutive year of large company dominance, a
trend that has not persisted for this long throughout the last seven decades.
And of course, it has been a major handicap for our Portfolio, especially in
Fiscal Year 1999. It didn't pay to be small in the last year. However, I feel
the spring has been wound tighter and tighter in favor of ultra-small stocks.
Historically, periods of large-company dominance have been followed by
ultra-small company dominance. It's pretty hard to tell when the cycle will end,
however, so there are no promises for Fiscal Year 2000.

The graph below presents the recent dominance of very large companies in the
marketplace. During the last three-year period, ultra-small stocks, as an asset
class, have returned less than half their previous long-term historical rate.
Over the same period, very large companies have returned over three times

2
<PAGE> 93

their long-term historical rate. This large-cap dominance stands out in great
contrast to the long-term trend, but large and small stocks do go through cycles
of leading in the marketplace. I believe we are overdue for a return to the
long-term trends.

Detailed Explanation of Fiscal Year Performance--Value Stocks Also Trail in
Performance

TRANSLATION: Value stocks, those priced cheaply relative to some financial
measures of worth, have also done particularly poorly over the last year. Once
again, this performance runs counter to the long-term historical trend, and it
hurt our Portfolio performance.

The following diagram presents one-year returns for the nine style boxes
according to the methodology used by Morningstar. It illustrates not only the
penalty over the last year for being small, but also a significant penalty for
being on the "value" end of the spectrum. The difference between value and
growth over the last year was a full 16 percentage points among small-company
funds. For micro-cap funds the difference was even more dramatic and pervasive.
The average value-oriented micro-cap fund underperformed the average
growth-oriented micro-cap fund by an astonishing 35+ percentage points. Being
far to the value end of the spectrum hurt our performance over the last year. So
why are we there? While our models choose both growth and value stocks, there
are currently many more ultra-small stocks in the value end of the spectrum.
Since ultra-small stocks have also historically performed better, I am not
changing the style focus of our Portfolio.

<TABLE>
<S> <C> <C> <C>
Value Growth
Large
---------------------------------
12.7% 18.9% 27.0%
---------------------------------
6.3% 7.6% 19.7%
---------------------------------
-6.4% -0.9% 9.6%
---------------------------------
Small
</TABLE>

Detailed Explanation of Fiscal Year Performance--The Individual Company
Perspective

TRANSLATION: In previous quarters and years, stocks in our Portfolio that gained
the most or lost the most reflected the overall Portfolio return. Frequently,
particular industries also reflect Portfolio performance. In the last year we
had some dramatic winners and losers, but no pattern emerged. The vast majority
of ultra-small value stocks simply did not do well.

Each year and in most quarters, I present a list of "movers and shakers," those
stocks which did the most either to contribute toward or to damage our
performance. Frequently, a pattern emerges from this list. Apart from the trends
mentioned above, I see no patterns in this year's list, except for home
furnishings, which had four companies on the "bad" list and none on the good.
Well over half of the companies that declined the most were in industries that
were also represented on the list of largest gainers. Technology is an example.
Ten of our technology companies declined by more than 50% over the last year.
Fourteen technology companies appreciated by more than 50%.

One other major conclusion emerges from analyzing the lists of gainers and
decliners: they are not the reason for our year of negative performance. If you
had invested an equal amount of money in each of these 62 companies for the
period of time we owned them (e.g., you bought on the same day we bought and
sold on the same day we sold) the average return would have been a positive 22%.

<PAGE> 94

The lists of gainers and decliners also illustrate another characteristic of
ultra-small stocks relative to their volatility. A company can't decline more
than 100%, but there is no theoretical limit to its upside potential. While this
theory may be true for stocks of all sizes, the potential for a triple-digit
gain is much greater for a tiny company. A behemoth like General Electric will
likely not double in the course of a single year. We had no company which
declined by 100% (although one came close), but 15 appreciated by more than
100%. Thus, even though we had a larger number of declining stocks, the average
return of all the companies was very attractive.

So if the combination of 28 winners and 35 losers would have netted a 22%
performance figure, what was the problem? Interestingly, the real problem in our
Portfolio was the companies in the middle, the vast majority of which were in
negative territory (although not as dramatically as those in the list of
decliners).

Let's look first at the stocks that contributed the most to our fiscal year
return, or perhaps more appropriately put, eased the negative effect of many of
our other stocks:

<TABLE>
<CAPTION>
Rank Company Industry % Gain
---- ------- -------- ------
<S> <C> <C> <C>
1 Creative Computers, Inc. Retail Stores 344.5%
2 Unify Corp. Data Processing/Software 323.5%
3 MySoftware Company Data Processing/Software 303.4%
4 Forward Air Corp. Transportation/Freight 250.2%
5 J. B. Oxford Holdings Finance/Brokerage 246.4%
6 4 Kids Entertainment Inc. Services 241.2%
7 Frontier Airlines, Inc. Air Transport 230.8%
8 Power Integrations, Inc. Electronics/Electric 154.8%
9 Verity, Inc. Data Processing/Services 139.0%
10 Gilat Communications Ltd. Telecommunications 110.1%
11 Landair Corp. Transportation/Freight 102.5%
12 Catalyst International, Inc. Data Processing/Software 102.4%
13 I-Flow Corp. Medical Equipment/Supplies 101.8%
14 United Shipping and Techn. Corp. Services 91.7%
15 Laser Pacific Media Corp. Services 90.7%
16 Gentner Communications Corp. Electronics/Electric 86.4%
17 Performance Technologies, Inc. Data Processing/Hardware 78.8%
18 Point of Sale Ltd. Data Processing/Software 75.9%
19 Innotrac Corp. Services 74.0%
20 Railamerica Inc. Railroads 70.0%
21 Technomatix Technologies Inc. Data Processing/Software 69.4%
22 Republic Engineered Steel Steel/Iron 68.1%
23 Rimage Corporation Data Processing/Hardware 67.0%
24 MYR Group, Inc. Electronics/Electric 60.6%
25 SCP Pool Corp. Leisure-Amusement 58.4%
26 Gildan Activewear Inc. Textiles 56.5%
27 Information Advantage, Inc. Data Processing/Software 55.0%
28 Ardent Software, Inc. Data Processing/Software 54.5%
</TABLE>

The first two companies on this list benefited from the dramatic rise of the
Internet sector. Creative Computers "spun off" its subsidiary UBID, one of the
four largest Internet auction sites. (See "Story Stock Revisited" below.) Unify
Corp. develops software used for "e-commerce" on the Internet. Thus, Unify sells
its software applications to companies like Creative Computers to provide
Internet auction services. Unify Corp. provides a good illustration of current
ultra-small valuations. The company earned $0.48 over the last year and could
well earn double this amount in the next year. The stock price has recently been
as low as $10. If this were a large company Internet stock, it might well be
selling for ten

<PAGE> 95

times this much. I'm not suggesting the stock price could go to $100 any time
soon, but I don't understand why it's not trading in the twenties. Even though
the company has appreciated over four fold since our first purchase, I still
think it's cheap. We'll see what happens.

I live in Houston, where it is incredibly hot in the summer. I usually take a
family vacation in cooler climates in June, and I pause frequently to "take a
cool, refreshing breath for July and a breath for August," trying to store up
pleasant cool memories before returning to Houston's heat and humidity. You
might want to take a couple of breaths of the former list before reading the
next one. Here are our worst performing stocks in Fiscal Year 1999:

<TABLE>
<CAPTION>
Rank Company Industry % Decline
---- ------- -------- ---------
<S> <C> <C> <C>
1 PacificAmerica Money Ctr. Finance -97.0%
2 Alta Gold Company Mining -85.7%
3 WorldCorp, Inc. Air Transport -84.0%
4 Rich Coast Inc. Securities -83.3%
5 Natural Alternatives Int'l Food -73.5%
6 Advocat Inc. Health Care Facilities -71.8%
7 Crown Crafts, Inc. Home Furnishings -71.5%
8 Officeland, Inc. Office Equipment -70.8%
9 Pure World, Inc. Chemicals -70.1%
10 American Eco Corp. Pollution Control -69.2%
11 FTI Consulting, Inc. Services -69.1%
12 Interiors Inc Home Furnishings -69.1%
13 Advanced Health Corp Services -68.5%
14 SMED International Home Furnishings -68.4%
15 Hvide Marine Oil & Gas -67.0%
16 Information Mgmt. Assoc. Data Processing/Software -66.8%
17 ICF Kaiser International Machinery/Pollution Contr. -65.7%
18 DenAmerica Corp. Food Serving -61.7%
19 AlphaNet Solutions, Inc. Data Processing/Software -61.5%
20 Gradco Systems, Inc. Electronics/Electric -61.1%
21 Candies, Inc Leather & Shoes -61.1%
22 DA Consulting Group Data Processing -61.0%
23 ALPNET, Inc. Data Processing/Services -60.9%
24 SEEC Inc. Data Processing/Software -60.9%
25 Tab Products Co. Home Furnishings -60.1%
26 Smart Choice Auto. Group Services -60.0%
27 World Airways, Inc. Air Transport -59.7%
28 Sun Healthcare Healthcare Facilities -58.4%
29 Isomet Corp. Electronics/Electric -56.0%
30 PTI Holding, Inc. Leisure-Amusement -55.7%
31 NMT Medical., Inc Transport/air -55.2%
32 Summit Design, Inc. Data Processing/Software -55.2%
33 Condor Technology Data Processing/Software -54.2%
34 Oyo Geospace Corp. Electronics/Electric -52.3%
35 Baldwin Technology Co., Inc. Graphic Arts -50.0%
</TABLE>

The sustained downturn of ultra-small stocks has created an unusual environment
relative to the way our modeling applies to small companies.

<PAGE> 96

Typically, we sell a company when the model that identified it as a "buy" no
longer ranks it highly. This can happen for a number of reasons (including a
higher stock price as a result of the value of the company being fully
recognized). When bad things happen in a company, and/or the financial health of
the company deteriorates, we typically move assets to another higher-ranking
company. However, if the company stock price is absolutely devastated on bad
news, I had found over the years that it was is better to hold, at least for a
short period. While this strategy may work with larger stocks, with which I have
had fifteen years' experience trading, I learned in Fiscal Year 1999 that it
does not always work with ultra-small stocks. I have fine-tuned our ultra-small
modeling as a result.

Pacific America Money Center, a mortgage banking company and our worst
performing position, is an example of how bad things can get. When we bought it
in 1997, the company expected to earn over $4 per share in 1998. While earnings
were on track through the June quarter of last year, the company was
experiencing some "financial difficulty" due to the structure of its securitized
mortgages. When the stock price dropped from over $15 at the beginning of the
fiscal year to a low of $4 in early September, it was clear there were problems,
but I thought the plummet in price was excessive. I was wrong. An early October
press release detailed some of the company's problems, but announced a friendly
takeover offer at $10. I looked at that as an opportunity to exit. In fact the
price only jumped to a high of $7 1/2 after the announcement. Apparently the
acquiring company didn't like what they found in their further investigation
because they completely backed out of the deal. On this news, the price dropped
all the way down to a dollar. On November 15 the company announced a
restructuring and a September quarter loss of over $4. We sold this company at
an average price of $0.51. It is currently trading for $0.375.

Top Ten Holdings

The following list will give you a flavor of the diversity of our Portfolio. We
rarely put more than 3% of Portfolio net assets in any one company. I usually
start to trim them if the company grows much above this level. At the end of the
fiscal year, the Portfolio held 141 stocks, which are listed in the attached
financial statements. Here are the top ten:

<TABLE>
<CAPTION>
Percent of
Rank Description Industry Net Assets
---- ----------- -------- ----------
<S> <C> <C> <C>
1 Catherines Stores Corp. Retail Stores 3.5%
2 SCP Pool Corp. Leisure-Amusement 3.1%
3 Gilat Communications Ltd. Telecommunications 2.8%
4 Pilgrim America Capital Corp. Finance 2.7%
5 Performance Technologies, Inc. Data Processing/Hardware 2.7%
6 Braun's Fashions Corp. Retail Stores 2.6%
7 Unify Corp. Data Processing/Software 2.5%
8 Home Products International, Inc. Housewares 2.2%
9 Jos. A. Bank Clothiers, Inc. Retail Stores 2.2%
10 TTI Team Telecom International Ltd. Telecommunications 2.0%
-----
Total 26.3%
</TABLE>

Story Stock Revisited--Creative Computers

TRANSLATION: Following up on our story stock from December, we made quite a bit
of money from Creative Computers' spin-off of subsidiary UBID, although it took
us on quite an Internet roller coaster ride. The company is nurturing another
Internet subsidiary, which might make yet more money. We'll have to wait and
see. This story gets a bit complicated. Be forewarned.

The December quarter shareholder letter highlighted Creative Computers, a
computer retailer turned Internet stock. The company, which is parent company to
the fourth largest Internet auction site, has taken us on a wild ride. We bought
it in February of 1998 at a price of about $12. In October we bought more at
prices under $10 1/2. The company announced it would spin off (sell to the
public) 20% of the shares of UBID (the Internet subsidiary) through an initial
public offering of stock (IPO) in December.

<PAGE> 97

When Creative Computers took off with other Internet stocks in the December
quarter, we trimmed our position at prices ranging from $37.75 to $47.50, a tidy
profit. We had planned to sell a third of our holdings on both the completion of
the IPO and at the end of December, but the share price of Creative Computers
was selling at a discount of up to 50% of the underlying value of the other 80%
of UBID shares that Creative Computer owned. We decided to wait until this
discount evaporated when the company distributed the rest of its UBID shares
directly to shareholders in June, 1999. Only one of four things could happen: 1)
Creative Computers would double, catching up to the price of UBID, 2) UBID would
plummet, reaching the equivalent price of Creative Computers, 3) some
combination of 1) and 2), or 4) the distribution of shares would be called off.
We would make the most money under scenario one, but probably wouldn't lose any
money in any of the other three alternatives.

On June 5, Creative Computers did distribute the remaining shares of UBID. We
sold the UBID shares immediately afterwards at an average price of $25.50 (on an
equivalent share basis). Added to the new price for Creative Computers, this was
also a nice profit from our purchase price, but significantly less than the sale
price of shares we had trimmed earlier. As a footnote, since we sold our UBID
shares in early June, they have declined 47% through August 7. We still hold
some of our original Creative Computer shares, and have purchased more recently.
I think the basic Internet "store" of Creative Computers is worth at least $5,
about what it is trading for now. In addition, they have another subsidiary
called "e-cost," which although very small, is growing by leaps and bounds. I
wonder what they might have in mind for this subsidiary.

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, June 30, 1999;
security positions can and do change thereafter. The asset allocation
information provided near the end of this letter is for disclosure purposes only
and is not meant as investment advice.

Bridgeway Fund Turns 5!

On August 5 we celebrated Bridgeway Fund's fifth birthday. You will begin to see
the Ultra-Small Company Portfolio listed in five-year performance tables at the
end of this month. Since the average tenure of a mutual fund portfolio manager
is three and a half years, I'm starting to feel like an old timer.

The Worst Thing That Happened in Fiscal Year 1999

TRANSLATION: This is the section in which I annually reflect on the worst thing
that happened at Bridgeway. The worst thing in 1999 was my holding on to some
beaten-up ultra-small stocks too long. Although several Bridgeway portfolios
felt the effects, it cost our Ultra-Small Company Portfolio shareholders on the
order of seven and a half percentage points in the middle of the worst
ultra-small downturn since 1974. It cost my personal retirement money about five
percentage points. A steep market correction is not the time to make such
mistakes. Although I believe that the long-term performance of ultra-small
stocks shows a strong possibility of outperforming large stocks, sifting out
under-performing ultra-small stocks is essential.

It's a Bridgeway tradition to highlight in each annual report the worst thing
that happened at Bridgeway in the course of the last year. We try to create an
atmosphere within which all Bridgeway employees, including myself, can be open
about our mistakes. We want to learn everything we can from them, and it's
impossible to do so if they are not acknowledged and in open view. I subscribe
to the view that mistakes are the "jewels" which allow us to learn and grow.
When I make mistakes, I'm committed to learning from them and not repeating
them. As a shareholder of the Fund, you are an owner, my boss, and I want you to
know, too.

7
<PAGE> 98

we have not repeated the pricing error. To put the latter mistake in
perspective, most funds make pricing errors sooner or later, but we shouldn't
have made that one. In line with frequent industry practice, the Adviser "made
the Portfolio whole," reimbursing the cost of the mistake. In 1999 we have been
working hard to upgrade our financial controls and compliance standards. I
believe we now have some of the most stringent pricing controls in the industry.

The worst mistake in Fiscal Year 1999 was in continuing to hold some "beaten up"
ultra-small stocks too long. Ultra-Small Company Portfolio had its first
negative fiscal year performance in its history, down 14.5%. A portion of this
is beyond our control; ultra-small stocks experienced the worst downturn since
1974 during the last year. They recovered partially, and the asset class was
down 4.2% for the year ended June 30. Value stocks did much more poorly than
growth stocks. Nevertheless, for the first time in four years we underperformed
our asset class benchmark in an asset class that should be the easiest to beat.
We underperformed our micro-cap value-oriented competition by seven and a half
percentage points. The mistake I made was holding on to beaten-up stocks too
long after their fundamentals had started to deteriorate significantly. I should
have learned this lesson from previous downturns, even if they were not as
severe as last year's.

How Can We Do It Better? - Disclosure of Manager Pay and Fund Ownership

In the discussion below, the "Fund" includes all six portfolios of Bridgeway
Fund. The "Adviser," is Bridgeway Capital Management, Inc., the firm that
employs Bridgeway staff and charges the Fund a fee for investment advisory
services.

About a year ago, various journalists criticized the mutual fund industry for
lack of disclosure of manager pay and fund ownership. Public companies are
required to disclose stock ownership and executive pay, so why aren't mutual
funds? The following are extracts from some of the articles:

. . . In fact, fund shareholders are often left in the dark about what some
consider to be the most important disclosure question of all: Does the fund
manager invest in the fund that he or she manages? Whether your fund
manager "eats his own cooking" is a provocative question for fund
companies. . . . Fund managers demand similar shareholder information from
the major executives of companies they look to invest in. So why shouldn't
fund investors be given the same opportunity?

Wall Street Journal, 3/18/98

[At a recent mutual fund industry conference] . . . one person asked why
fund companies are so reluctant to disclose manager's ownership interests
in their own funds. . . . To defend the industry, [a fund executive]
erected the usual . . . straw man. He said that it would be unfair to
require a 35-year-old muni-bond manager to put a lot of his personal
resources into an obviously inappropriate investment for someone that age.
A lot of fund companies must have 35-year-old muni-bond managers, because
that seems to be the 100th time I've heard that defense. This excuse
doesn't hold water. Most investors wouldn't expect a young manager to put a
lot of his or her own money into a muni fund. And at any rate, the fund
companies could explain away this situation in a brief paragraph in each
shareholder report. Scott Cooley, Morningstar.net, 5/21/98

8
<PAGE> 99

And recently a somewhat dissenting view:

Yes, it would be nice if you could know how your fund manager's performance
is being measured--whether on the fund's asset growth, pure returns, or
risk-adjusted returns, for example--so you, as a shareholder-owner, would
know if the manager's interests are aligned with or in conflict with your
own. But worrying about how much that manager makes simply isn't worth the
effort.

Gregg Wolper, Morningstar.net, 5/21/98

It's probably not worth the effort because it's also not always possible. Mutual
funds companies are required to disclose the total fund ownership of all
officers and directors as a group. Executive salaries of publicly traded mutual
advisory firms are available, but typically they don't include portfolio
managers' salaries. By now, you probably see where I'm headed.

Bridgeway is not afraid to break new ground in the industry. We were the first
fund company to provide shareholders with personalized performance numbers. We
were the first to close a portfolio at what is a laughably low level by industry
standards because we felt it was in shareholders' best interests. We have walked
away from legal brokerage commission structures (soft dollar commissions) which
would have taken money right out of shareholders' pockets and put it into the
Adviser's. We are not afraid to prohibit Bridgeway portfolio managers from
investing in a security which a Bridgeway portfolio might also own. (We were not
the first, but we are in a tiny minority.) Thus, Bridgeway Fund is my only
outlet for domestic stock market investing.

I can think of only two reasons not to disclose my compensation and investing
status. First, it will eat up another two or three pages of this paper to
disclose and explain. Second, I was raised to believe one does not talk publicly
about one's salary. (At least I think I was. We never talked openly about
salaries and we never talked about not talking about salaries. So I may be
breaking a family dinner table rule here; I'm sure my family will let me know;
several are also shareholders.)

<TABLE>
<CAPTION>
Total Capital Total Net
Year Compensation Contributions Cash Flows
---- ------------ ------------- ----------
<S> <C> <C> <C>
1993 (211,000) (211,000)
1994 (217,000) (217,000)
1995 70,284 (10,000) 60,284
1996 29,833 (12,000) 17,833
1997 158,041 158,041
1998 93,096 93,096
</TABLE>

Total compensation in the table above includes SEP IRA contributions of $2,391,
shareholder distributions of $8,200 and loans of $36,625. These figures are from
the Adviser's unaudited financial statements.

I want to answer some potential questions about the table and articles above.

Does the Fund pay the Portfolio Managers' compensation?

No, but there is a financial relationship. Bridgeway Fund pays an investment
advisory fee to the Adviser, which in turn helps pay all the expenses of the
Adviser, including my salary. The Adviser may also make dividend distributions
to all Adviser shareholders, or loans to any individual.

How is the Portfolio Manager's compensation tied to Bridgeway Ultra-Small
Company's performance?

My compensation is tied to Ultra-Small Company's performance in two ways. First,
salaries for all full-time Bridgeway employees, including myself, have a
component tied to profitability of the Adviser. The

<PAGE> 100

profitability of the Adviser is a function of portfolio performance through the
performance-based fee in three of our actively managed portfolios, Aggressive
Growth, Social Responsibility and Micro-Cap Limited. Ultra-Small Company is not
one of these. (You can imagine that the Bridgeway staff is quite interested in
how well I do my job - besides the fact that each and every one of them is also
a shareholder.) Second, my personal performance is a function of specific goals,
which are integrity (10%), investment performance (50%), efficiency (10%),
service (20%), and asset growth (10%). The investment performance of our
portfolios, including this one, thus comprises half of the evaluation score that
determines my salary.

There is a lot of variability in your compensation from year to year. Why is
this?

In the first years of Bridgeway, before the Adviser was making a profit for
itself, I contributed capital to help cover expenses. There was no reason to
draw a salary. I began drawing a salary as our cash flow allowed. Last year I
kept my salary low because 1) the Adviser profits were lower than anticipated
[we endured a twenty-year "small-stock storm,"] and 2) I wanted to meet federal
requirements to roll my IRA into a Roth IRA.

Recent articles indicate that the median mutual fund manager total cash
compensation is $274,500. Couldn't you make more working at another fund
company?

Yes, currently that is true, but I can't imagine having nearly as much fun, joy
or input. There are several reasons my salary is lower. First, Bridgeway's asset
base is much smaller than the average fund. Second, our Ultra-Small Company
Portfolio declined last year, so our fees and my salary are commensurately lower
than they would be otherwise. Third, by Bridgeway policy, no employee's
compensation can be more than seven times that of the lowest paid employee. This
isn't a constraining factor yet, but it will be before I reach the industry
average. This policy is important to our company's culture and business
strategy. The ratio of the highest to lowest paid employees among the largest
U.S. companies has grown from 44 to 1 in 1965 to 326 to 1 in 1997. I support
free enterprise and am not suggesting that 7 to 1 should be corporate America's
ratio, but with some salaries of seven and eight digit figures, I think
executive salaries have gotten out of hand.

If Bridgeway profits take off, won't you just be taking big distributions,
making your salary number irrelevant?

Some day this could be the case. We are a for-profit corporation; I am not the
only shareholder, and I did make a significant investment to found Bridgeway.
However, let me fill you in on some of Bridgeway's unusual distribution plans.
Part of Bridgeway Capital Management's mission statement is to contribute just
over half of its own profits to charitable and non-profit organizations.
Eventually I do intend to recover the capital contributions I made to Bridgeway.
Before this is complete, we will be donating at least 10% of annual profits to
charities; afterward, just over half. The other portion of our profits is
available for working capital and for shareholder distributions. I have
committed to contribute 20% of my Bridgeway Capital Management shares to an
employee stock ownership plan. I have a life goal of giving away $100 million
annually when I retire. If I succeed at this, I will have helped make many Fund
shareholders quite happy along the way. As you may be able to tell, I take great
joy in both receiving and giving. From time to time I encourage our shareholders
in the area of generosity, which offends a few, but "lights up" others. Some
shareholders don't care what we do with our money as long as the Fund is making
money for them.

You can only invest in the stock market through Bridgeway Fund. How much of each
Portfolio do you own and why?

My target asset allocation is 62% Ultra-Small Company, 5% Micro-Cap Limited, 25%
Aggressive Growth, and 8% Social Responsibility. My actual valuation varies with
portfolio fluctuations. At the end of June, my IRA account, my wife's IRA, plus
my interest in a small investment by Bridgeway Capital Management was worth
$116,000. I expect to be making additional investments in Bridgeway Fund as my
family college tuition expense declines and I pay down my debt.

<PAGE> 101

There are three reasons for my rather "aggressive" allocation between the
Bridgeway portfolios. First, I have a very high tolerance for short-term risk
with money I invest for the long-term. (I don't put money that I might need to
spend in the next couple of years in the stock market, I put it in a short-term
bond fund or the highest yielding money market fund I can find.) Almost all of
my stock market money is my long-term retirement money. I don't expect to retire
in the next 20 years. I do expect the stock market to go through several major
corrections before then, but I have overall faith in the U.S. economy and would
expect the market to recover, given enough time. So I generally ignore
short-term fluctuations and don't lose any sleep when my investments are down
30-40% from their peak. It's the nature of the stock market to "correct" itself.

Second, since I am disciplined in ignoring short-term fluctuations, I seek out
asset classes and diversifying stock picking models with higher short-term
volatility coupled with historically higher average annual return. I avoid
investments that use leverage to gain additional stock market exposure. This is
how you really get in trouble in a major correction. Over the last fifteen years
my strategy has worked very well for me. It would not work as well in an
extended recession, but I don't anticipate recessions that last twenty years, or
even ten. Although, of course, theoretically they could.

Third, since most of my investments are through my IRA, it is easy to ignore the
effect of taxes. Ultra-Small Company is not one of our more tax efficient
portfolios, although as portfolio manager I pay attention to tax consequences
when I think it will not adversely affect total returns. I do, for example, use
a tax lot accounting method to maximize short-term losses and long-term grains.
In the future, when I invest in Bridgeway Fund through a taxable account, I
still plan primarily to use our actively managed portfolios, but I may hedge
some by also investing a bit in our two extremely tax efficient portfolios,
Ultra-Small Index and Ultra-Large 35 Index.

The following are factors that have affected my allocation between portfolios.
The ultra-small company asset class has the highest historical average annual
return of any asset class I know. Micro-Cap Limited has the advantage of being a
more "focused" and very nimble portfolio. Aggressive Growth relies primarily on
models I have used for the longest period of time personally, since 1985. Social
Responsibility focuses on social issues I am interested in, as well as financial
performance.

Total Returns of Other Bridgeway Portfolios

Some shareholders have requested that we periodically present the performance of
all Bridgeway portfolios. Numbers in bold indicate the top performing portfolio
in a given period. The performance figures help illustrate the advantage of
diversification, even across some of our portfolios. This data is presented in
the more common format of calendar, rather than fiscal years.

<TABLE>
<CAPTION>
8/5/94 to 1/1/99 to Avg. Ann. Avg. Ann. Avg. Ann.
12/31/94 1995 1996 1997 1998 6/30/99 Since 8/94 Since 7/97 Since 6/98
-------- ---- ---- ---- ---- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aggressive Growth 8.8 27.1 32.2 18.3 19.3 25.5 27.1 23.4 33.4
Ultra-Small Company -2.8 39.8 29.7 38.0 -13.1 1.4 16.9 -5.1 -14.5
Social Responsibility 1.5 30.3 16.2 27.5 37.8 11.3 25.2 28.7 26.2
Ultra-Small Index -1.8 1.4 -0.4 -12.8
Ultra-Large 35 Index 39.1 14.1 27.4 30.3
Micro-Cap Limited 7.6* 18.6 27.6

S&P 500 Index 1.7 37.5 23.0 33.4 28.9 12.1 27.6 22.7 22.8
Russell 2000 Index 3.2 28.3 16.5 22.4 -2.6 9.3 15.3 6.7 1.5
CRSP "10" Index -0.8 30.3 16.9 22.0 -10.8 13.1 13.5 3.7 -4.1
CRSP "9" Index -8.1* 12.5 3.5
</TABLE>

*Includes the period 7/1/99 - 12/31/99 only

11
<PAGE> 102

Bridgeway Formalizes Expense Limitations

At the August 18 meeting of the Fund's Board of Directors, the directors voted
unanimously to amend the management contract with the Adviser (Bridgeway Capital
Management) to include the 2.0% expense limitation in the body of the contract.
The expense reimbursement was previously an "undertaking" of the Adviser outside
of the management contract. Its inclusion in the contract means that the expense
limitation cannot be increased in the future without a vote of shareholders.
Since it was never our intention to raise the expense limitation, both the Fund
and the Adviser were happy to add this language to the contract. This change
will be effective in the contract and incorporated in our new prospectus dated
October 31, 1999.

Year 2000 Preparedness

TRANSLATION: Operationally, we consider ourselves ready. Investment-wise, we're
ignoring it. This is a conscious, reasonable, and intentional decision on our
part.

Bridgeway believes that its internal systems are ready for potential software
and hardware issues which could arise from the year 2000. Operationally, there
is still some risk that the phone company, electric utility, or other supplier
will not be ready. However, we have taken reasonable steps to ensure our
vendors' compliance and we have made some contingency plans. We are taking it
seriously.

On the investment side, Bridgeway has taken no actions and plans to take no
actions with respect to potential stock market movements around the end of the
current year. For our index portfolios, we will passively hold the companies (or
in the case of Ultra-Small Index, a sample of the companies) which comprise the
index, regardless of their degree of preparedness. In the case of our actively
managed funds, we have no model variables for "Y2K," and plan to continue to
follow our current models in a disciplined way. We feel there is just as high a
risk from being out of the market for a period as there is exposing our
Portfolio to a Y2K-related market decline.

Conclusion

As always, I appreciate your feedback. We take it seriously and have made
continuing improvements because people have taken the time to write or call us.
The table on the previous page is just one example. Please keep your ideas
coming.

Sincerely,

/s/ JOHN MONTGOMERY

John Montgomery

12
<PAGE> 103
BRIDGEWAY FUND, INC.
ULTRA-SMALL COMPANY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1999

<TABLE>
<CAPTION>
Industry Company Shares Value
-------- ------- ------ -----

<S> <C> <C> <C>
Common Stock - 94.6%
Aerospace - 0.6%
Axsys Technologies, Inc. * 17,950 $ 206,425

Air Transport - 2.3%
Cade Industries, Inc. * 48,000 124,500
Frontier Airlines, Inc. * 36,000 580,500
Tower Air Inc. * 12,000 32,250
World Airways, Inc. * 15,000 23,438
----------
760,688
Aluminum & Products - 0.7%

InVision Technologies, Inc. * 47,100 241,388

Auto Parts - 0.2%
R & B, Inc. * 6,000 49,500

Automobiles - 0.6%
Featherlite, Inc. * 16,100 109,681
McLaren Automotive Group Inc.* 18,000 87,750
----------
197,431
Banking - 0.3%
Hallmark Capital Corporation * 7,800 90,675

Beverages - 0.5%
Saratoga Beverage Group Inc. * 41,646 104,115
Vermont Pure Holdings, Ltd. * 18,500 65,906
----------
170,021
Building - 1.4%
Dominion Homes, Inc. * 6,000 44,250
Engle Homes, Inc. 10,100 138,875
Perini Corporation * 15,300 87,019
Transcoastal Marine
Services, Inc. * 37,400 182,325
The Turner Corporation * 1,000 17,625
----------
470,094
Chemicals - 0.0%
Pure World, Inc. * 400 1,725

Containers - 0.1%
Disc Graphics, Inc. * 8,900 43,944

Data Processing - Hardware - 1.1%

Bell Microproducts, Inc. * 52,350 359,906

Data Processing - Software & Services - 20.4%
ARDENT Software, Inc. * 1,600 34,000
CFI Proservices * 12,200 137,250
Caredata.com Inc. * 2,000 18,000
Catalyst International, Inc. * 26,300 471,756
Condor Technology
Solutions, Inc. * 52,000 243,750
DA Consulting Group, Inc. * 39,800 238,800
FOURTH SHIFT Corporation * 66,500 245,219
Health Management
Systems, Inc. * 60,000 330,000
Input Software Inc. * 29,000 173,094
Managed Care Solutions * 18,100 65,613
MapInfo Corporation * 2,000 38,000
MathSoft, Inc. * 116,000 333,500
Mecon, Inc. * 7,600 57,000
Merisel, Inc. * 77,500 $ 176,797
Overland Data, Inc. * 58,000 369,750
Performance Technologies, Inc. * 43,200 869,400
Point of Sale Ltd. * 29,000 362,500
Printrak International Inc. * 12,000 88,500
SEEC, Inc. * 104,900 445,825
The Santa Cruz Operation, Inc. * 73,500 480,047
Simware Inc. * 54,800 191,800
Unify Corporation * 61,600 831,600
Verity, Inc. * 7,800 422,663
----------
6,624,864
Drugs-Generic and OTC - 2.4%
D & K Healthcare
Resources, Inc. * 26,700 637,463
Neogen Corporation * 22,500 143,438
----------
780,901
Education - Education - 0.1%
TRO Learning, Inc * 6,500 39,813

Electronics/Electric - 8.1%
Dataram Corporation * 8,300 81,963
EDO Corporation 15,000 108,750
Gentner Communications
Corporation * 65,000 333,125
Gradco Systems, Inc. * 123,400 323,925
inTest Corporation * 5,100 35,700
K-Tron International, Inc. * 11,400 200,925
Key Tronic Corporation * 5,000 28,125
MYR Group Inc. 3,600 63,225
OYO Geospace Corporation * 6,300 82,688
PSC Inc. * 33,100 324,794
Percon Inc. * 10,500 84,656
Royal Appliance Mfg. Company* 15,000 104,063
Spire Corporation * 2,000 7,750
Vari-L Company * 70,700 605,369
Vicon Industries, Inc * 27,900 251,100
----------
2,636,158
Finance - 2.8%
Litchfield Financial Corporation 2,000 33,875
Pilgram America Capital
Corporation * 45,500 881,563
----------
915,438
Food - 0.6%
Green Mountain Coffee, Inc. * 30,000 205,313

Food Serving - 1.4%
Garden Fresh Restaurant
Corporation * 7,700 144,375
Roadhouse Grill, Inc. * 49,600 319,300
----------
463,675
Graphic Arts - 0.4%
Baldwin Technology
Company, Inc. * 23,700 69,619
PrimeSource Corporation * 7,900 48,388
----------
118,007
Health Care Facilities - 0.5%
Advocat Inc. * 25,100 48,631
Insight Health Services
Corporation * 4,300 27,413
MIM Corporation * 37,000 90,188
----------
166,232
</TABLE>

<PAGE> 104

BRIDGEWAY FUND, INC.
ULTRA-SMALL COMPANY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS, continued
Showing percentage of total net assets
June 30, 1999

<TABLE>
<CAPTION>
Industry Company Shares Value
-------- ------- ------ -----

<S> <C> <C> <C>
Home Furnishings - 2.3%
Crown Crafts, Inc. 13,200 $ 57,750
Flexsteel industries, Inc. * 7,400 98,513
Interiors, Inc. * 27,000 28,688
Winsloew Furniture, Inc. * 17,200 578,350
----------
763,301
Housewares - 2.2%
Home Products
International, Inc. * 84,600 719,100

Jewelry, Silverware, Watches - 1.3%
Jan Bell Marketing, Inc. * 41,300 144,550
OroAmerica, Inc. * 41,800 292,600
----------
437,150
Leather & Shoes - 1.6%
Candie's Inc. * 80,900 165,238
Tandy Brands Accessories, Inc.* 20,590 352,604
----------
517,842
Leisure-Amusement - 5.4%
Funco, Inc. * 2,000 36,875
Noodle Kidoodle, Inc. * 62,500 332,031
PTI Holding Inc. * 110,900 325,769
SCP Pool Corporation * 39,626 1,025,323
Sonic Solutions * 8,000 37,000
----------
1,756,998
Machinery - 0.5%
Denali Incorporated * 12,100 90,750
Inotek Technologies
Corporation * 3,000 1,500
Summa Industries * 5,150 66,628
----------
158,878

Medical Equipment/Supplies - 2.2%
Del Global Technologies
Corporation * 4,400 42,900
Dental/Medical Diagnostic
Systems, Inc. * 40,700 269,638
HPSC, Inc. * 3,500 33,250
I-Flow Corporation * 45,400 160,319
Interpore International * 47,000 193,875
Kewaunee Scientific Corporation 2,600 27,300
----------
727,282

Mining - 0.0%
Alta Gold Company * 9,000 2,250

Office Equipment - 0.1%
Officeland Inc. * 23,500 20,562

Oil & Gas - 3.5%
Adams Resources & Energy, Inc. 6,500 51,188
Bolt Technology Corporation * 42,700 242,856
Callon Petroleum Company * 26,740 275,756
Castle Energy Corporation 20,500 369,000
Clayton Williams Energy Inc. * 7,200 42,750
Petroleum Development
Corporation * 39,000 163,313
----------
1,144,863
Pollution Control - 0.5%
American Eco Corporation * 54,500 109,000
MISONIX, Inc. * 7,400 47,637
----------
156,637

Retail Stores - 12.3%
Andersons Inc. 14,050 $ 179,138
Braun's Fashions Corporation * 59,400 850,163
Catherines Stores Corporation * 92,800 1,148,400
Creative Computers, Inc. * 39,825 318,600
EZCORP, Inc. 14,600 100,375
JLM Couture Inc. * 9,200 20,988
Jos. A. Bank Clothiers, Inc. * 111,200 708,900
Phar-Mor Inc. * 42,800 181,900
Wilsons The Leather Experts Inc. * 29,800 489,838
----------
3,998,302
Services - 9.3%
ASI Solutions Inc. * 15,500 127,875
Advanced Marketing
Services, Inc. 16,650 249,750
FTI Consulting, Inc. * 52,800 277,200
GRC International, Inc. * 60,000 510,000
HMG Worldwide Corporation * 37,500 147,656
Innovative Medical Services * 12,400 24,413
InterDent, Inc. * 28,223 206,381
International Airline Support
Group, Inc. * 3,500 14,875
Laser-Pacific Media Corporation* 83,000 495,406
Navigant International, Inc. * 62,000 488,250
ProsoftTraining.com * 20,000 50,000
Rich Coast Inc. * 35,125 8,781
The Solomon-Page Group Ltd. * 28,500 82,828
TEAM America Corporation * 10,500 46,922
United Shipping &
Technology, Inc. * 17,500 50,313

VDI Media * 34,000 221,000
----------
3,001,650
Steel/Iron - 0.0%
Bayou Steel Corporation * 1,500 5,625

Telecommunications - 5.0%
Comtech Telecommunications
Corporation. * 6,000 63,750
Gilat Communications Ltd. * 56,300 900,800
TTI Team Telecom
International Ltd. * 65,300 653,000
----------
1,617,550
Textiles - 0.1%
Haggar Corporation 3,500 45,938

Transportation - 1.1%
RailAmerica, Inc. * 34,600 356,813

Transportation/Freight - 1.8%
Consolidated Delivery &
Logistics, Inc. * 15,100 52,850
Forward Air Corporation * 19,400 545,625
----------
598,475
Trucking - 0.9%
P.A.M. Transportation
Services, Inc. * 12,400 122,450
</TABLE>

<PAGE> 105

BRIDGEWAY FUND, INC.
ULTRA-SMALL COMPANY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS, continued
Showing percentage of total net assets
June 30, 1999

<TABLE>
<CAPTION>
Industry Company Shares Value
-------- ------- ------ -----

<S> <C> <C> <C>
Trucking, continued
Smithway Motor Xpress
Corporation * 13,100 131,000
USA Truck, Inc. * 3,900 35,709
-----------
289,159

-----------

Total Common Stock (Identified Cost $31,019,320) $30,860,573

Short-term Investments - 5.1%

Money Market Funds - 5.1%
Expedition Money Market Fund 569,301 569,301
Federated Money Market Prime
Obligations Fund 552,557 552,557
SEI Daily Income Trust Prime
Obligations Fund 552,557 552,557
-----------
1,674,415

-----------

Total Short-term Investments
(Identified Cost $1,674,415) $ 1,674,415

-----------

Total Investments - 99.7% $32,534,988

Other Assets and Liabilities, net - 0.3% 112,548

-----------

Total Net Assets - 100.0% $32,647,536
===========
</TABLE>

* Non-income producing security as no dividends were paid
during the period from July 1, 1998 to June 30, 1999.

** The aggregate identified cost on a tax basis is $32,696,675.

Gross unrealized appreciation and depreciation were $6,319,198 and
$6,477,816, respectively, or net unrealized depreciation of $158,618.

See accompanying notes to financial statements.

<PAGE> 106

BRIDGEWAY FUND, INC. - ULTRA-SMALL COMPANY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 1999

<TABLE>
<S> <C>
ASSETS:
Investments at value (cost - $32,693,735) $ 32,534,988
Receivable for investments sold 240,499
Receivable from adviser 929
Receivable for interest 5,495
Receivable for dividends 703
Prepaid expenses 16,315
------------
Total assets 32,798,929
------------

LIABILITIES:
Bank overdraft 55,560
Payable for shares redeemed 53,093
Payable for investments purchased 7,699
Accrued expenses 35,041
------------
Total liabilities 151,393
------------
NET ASSETS (2,189,000 SHARES OUTSTANDING) $ 32,647,536
============
Net asset value, offering and redemption price per share ($32,647,536 / 2,189,000) $ 14.91
============

NET ASSETS REPRESENT:
Paid-in capital $ 38,095,031
Undistributed net realized loss (5,288,748)
Net unrealized depreciation of investments (158,747)
------------
NET ASSETS $ 32,647,536
============
</TABLE>

BRIDGEWAY FUND, INC. - ULTRA-SMALL COMPANY PORTFOLIO
STATEMENT OF OPERATIONS
For the year ended June 30, 1999

<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 30,396
Interest 31,049
------------
Total income 61,445
------------

EXPENSES:
Management fees 495,000
Accounting fees 180,308
Audit fees 21,798
Custody 30,234
Amortization of organization costs 4,606
Insurance 7,176
Legal 5,072
Registration fees 13,673
Directors' fees 3,012
Miscellaneous 1,931
------------
Total expenses 762,810
Less fees waived (86,675)
------------
Net expenses 676,135
------------

NET INVESTMENT LOSS (614,690)
------------

NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized loss on investments (5,288,748)
Net change in unrealized depreciation (1,363,335)
------------
Net realized and unrealized loss (6,652,083)
------------

NET DECREASE IN ASSETS RESULTING FROM OPERATIONS $ (7,266,773)
============
</TABLE>

See accompanying notes to financial statements.

<PAGE> 107

BRIDGEWAY FUND, INC. - ULTRA-SMALL COMPANY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
Year ended Year ended
INCREASE (DECREASE) IN NET ASSETS: June 30, 1999 June 30, 1998
OPERATIONS:
<S> <C> <C>
Net investment loss $ (614,690) $ (609,466)
Net realized gain (loss) on investments (5,288,748) 10,369,950
Net change in unrealized depreciation (1,363,335) (4,439,194)
------------ ------------
Net (decrease) increase resulting from operations (7,266,773) 5,321,290
------------ ------------
Distributions to shareholders:
From net investment income 0 0
From realized gains on investments (6,854,952) (3,065,168)
------------ ------------
Total distributions to shareholders (6,854,952) (3,065,168)
FUND SHARE TRANSACTIONS:
Proceeds from sale of shares 7,383,817 15,231,033
Reinvestment of dividends 6,788,597 3,018,349
Cost of shares redeemed (13,659,848) (4,319,011)
------------ ------------
Net increase from Fund share transactions 512,566 13,930,371
------------ ------------
Net (decrease) increase in net assets (13,609,159) 16,186,493
NET ASSETS:
Beginning of period 46,256,695 30,070,202
------------ ------------
End of period $ 32,647,536 $ 46,256,695
============ ============

Number of Fund shares:
Sold 498,055 632,949
Issued on dividends reinvested 554,171 141,441
Redeemed (916,868) (178,802)
------------ ------------
Net increase 135,358 595,588
Outstanding at beginning of period 2,053,642 1,458,054
------------ ------------
Outstanding at end of period 2,189,000 2,053,642
============ ============
</TABLE>

See accompanying notes to financial statements.

<PAGE> 108

BRIDGEWAY FUND, INC. - ULTRA-SMALL COMPANY PORTFOLIO
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the period)

<TABLE>
<CAPTION>
Year ended Year ended Year ended
June 30, 1999 June 30, 1998 June 30, 1997
PER SHARE DATA
<S> <C> <C> <C>
Net asset value, beginning of period $ 22.52 $ 20.62 $ 16.68
------------ ------------ ------------
Income (loss) from investment operations:
Net investment loss (0.28) (0.34) (0.24)
Net realized and unrealized (loss) gain (3.77) 4.03 4.50
------------ ------------ ------------
Total from investment operations (4.05) 3.69 4.26
------------ ------------ ------------
Less distributions to shareholders:
Net investment income 0.00 0.00 0.00
Net realized gains (3.56) (1.79) (0.32)
------------ ------------ ------------
Total distributions (3.56) (1.79) (0.32)
------------ ------------ ------------
Net asset value, end of period $ 14.91 $ 22.52 $ 20.62
============ ============ ============

TOTAL RETURN [1] (14.6)% 18.4% 26.0%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period $ 32,647,536 $ 46,256,695 $ 30,070,202
Ratios to average net assets: [2]
Expenses after waivers and reimbursements 2.00% 1.67% 1.67%
Expenses before waivers and reimbursements 2.26% 1.67% 1.87%
Net investment loss after waivers and reimbursements (1.82)% (1.42)% (1.37)%

Portfolio turnover rate [2] 80.4% 103.4% 56.2%
</TABLE>

<TABLE>
<CAPTION>
Year ended 8/5/94* to
June 30, 1996 June 30, 1995
PER SHARE DATA
<S> <C> <C>
Net asset value, beginning of period $ 11.35 $ 10.33
------------ ------------
Income (loss) from investment operations:
Net investment loss (0.21) (0.04)
Net realized and unrealized (loss) gain 6.03 1.07
------------ ------------
Total from investment operations 5.82 1.03
------------ ------------
Less distributions to shareholders:
Net investment income 0.00 0.00
Net realized gains (0.49) (0.01)
------------ ------------
Total distributions (0.49) (0.01)
------------ ------------
Net asset value, end of period $ 16.68 $ 11.35
============ ============

TOTAL RETURN [1] 52.4% 10.5%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period $ 4,557,591 $ 667,536
Ratios to average net assets: [2]
Expenses after waivers and reimbursements 1.97% 1.68%
Expenses before waivers and reimbursements 3.07% 8.34%
Net investment loss after waivers and reimbursements (1.47)% (0.65)%

Portfolio turnover rate [2] 155.9% 103.6%
</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.

<PAGE> 109

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

1. Organization:

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

The Fund is organized as a series fund and has 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.

The Ultra-Small Company Portfolio was closed to new investors on June 9,
1997 when assets reached $27.5 million and was closed to all investors
on June 30, 1998. On November 1, 1998 it reopened to existing investors.

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.

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 invests in stocks. Such investments are exposed to various
risks, such as interest rate, market and credit. Due to the level of
risk associated with certain investments and the level of uncertainty
related to changes in the value of investments, 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.

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 are no 12b-1 fees.

<PAGE> 110

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

2. Significant Accounting Policies

Other

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

3. Management Contract:

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

4. Related Party Transactions:

One director of the Fund, John Montgomery, is an owner and director of
the Adviser. Under the Investment Company Act of 1940 definitions, he is
considered to be "affiliated" and "interested." Compensation of Mr.
Montgomery is borne by the Adviser rather than the Fund. The other
officers 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.

The Adviser has agreed to reimburse the Ultra-Small Company Portfolio
for any operating expenses above 2.0%. To achieve this expense level the
Adviser has waived $86,675 of the management fees for the year ended
June 30, 1999.

5. 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.

6. Cost, Purchases and Sales of Investment Securities:

Investments have the same cost for tax and financial statement purposes.
Aggregate purchases and sales, other than cash equivalents were
$26,838,621 and $33,656,001 for the year ended June 30, 1999.

7. Federal Income Taxes:

The Fund incurred a net loss from investment operations and made no
investment income dividends during the year. Distributions of net
realized short-term capital gains are, for federal income tax purposes,
taxable as ordinary income to shareholders. The ordinary income
distributions did not qualify for the dividends received deduction of
corporate shareholders.

The Fund intends to utilize provisions of the federal income tax laws
which allow it to carry a realized capital loss forward for eight years
following the year of loss and offset such losses against any future
realized capital gains. At June 30, 1999 the fund had $1,646,105 in
capital loss carryforwards for federal income tax purposes which expire
June 30, 2007. The Fund incurred and elected to defer post-October 31
net capital losses of $3,649,203 to the year ended June 30, 2000.

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. These differences are primarily due to
differing treatment of net operating losses and tax allocations.
Accordingly, these permanent differences in the character of income and
distributions between financial statements and tax basis have been
reclassified to paid-in-capital. Net investment losses of $614,690 were
reclassifed to paid in capital for the year ended June 30, 1999.

<PAGE> 111

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of Bridgeway Fund, Inc.
and Shareholders of the Ultra-Small Company Portfolio:

In our opinion, the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, and the related statements of operations
and changes in net assets and financial highlights present fairly, in all
material respects, the financial position of the Ultra-Small Company Portfolio
(one of the portfolios constituting Bridgeway Fund, Inc) at June 30, 1999, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the four years in the period then ended and for the
period from August 5, 1994 (commencement of operations) to June 30, 1995, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit, which included confirmation of
securities at June 30, 1999 by correspondence with the custodian and broker,
provides a reasonable basis for the opinion expressed above.

/s/ PRICEWATERHOUSECOOPERS LLP

Houston, Texas
August 23, 1999
<PAGE> 112
[BRIDGEWAY LETTERHEAD]

August 27, 1999

Dear Ultra-Small Index Portfolio Shareholder,

In the Fiscal Year Ended June 30, we endured the worst ultra-small bear market
since 1974. I am pleased that we matched the risk characteristics of our
benchmark CRSP Index during this downturn. Our Portfolio fell 22.8% in the
September quarter versus 24.0% for the CRSP Index of ultra-small companies.
However, I am displeased with our negative tracking error (See "Tracking Error"
on page 2) for in the March and June quarters and our -12.8% one-year return. I
am committing to significantly increase the number of companies we own in the
next two quarters to reduce this tracking error. The Portfolio's new symbol is
BRSIX.

The following table presents SEC standardized performance for one-year and
life-to-date. The graph below presents our cumulative quarterly performance
versus the same benchmarks.

<TABLE>
<CAPTION>
1 Year Life-to-Date
7/1/98 7/31/97 to
to 6/30/99 6/30/99(3)
---------- ------------
<S> <C> <C>
Ultra-Small Index Portfolio -12.8% -0.4%
CRSP Cap-Based Portfolio 10 Index (1) -4.1% 3.7%
Russell 2000 Index (2) 1.5% 6.7%
</TABLE>

(1) The CRSP Cap-Based Portfolio 10 Index is an unmanaged index of 2409 of
the smallest publicly traded U.S. stocks (with dividends reinvested)
as reported by the Center for Research on Security Prices. This is the
index we are seeking to match. (2) The Russell 2000 Index is an
unmanaged index of small companies (with dividends reinvested). This
latter index is the most widely tracked index among small company
funds, but it is comprised of companies roughly 10 times larger than
those of the CRSP Index and the Bridgeway Portfolio. (3) Life-to-Date
returns are annualized. Past performance does not guarantee future
returns.

GROWTH OF $10,000 INVESTED IN VARIOUS FUNDS AND INDEXES FROM 7/31/97
(INCEPTION) TO 6/30/99

[CHART]

<TABLE>
<CAPTION>
-----------------------------------------
Fund/Index Name Total Value
-----------------------------------------
<S> <C>
Bridgeway Ultra-Small
Company Portfolio $ 9,920
-----------------------------------------
Russell 2000 Index $11,314
-----------------------------------------
CRSP Cap-based
Portfolio 10 Index $10,729
-----------------------------------------
</TABLE>

<PAGE> 113

Explanation of Annual Performance

TRANSLATION: There were four reasons for our poor performance in the Fiscal Year
ending June 30. First, ultra-small stocks entered their worst downturn since
1974 in the September quarter and have yet to fully recover. Second, ultra-small
stocks as an asset class dramatically underperformed large ones. Third, while
our industry representation of the CRSP Index has improved in the last year,
more of our Portfolio stocks have slid into the "value" end of the spectrum
(stocks that are more cheaply priced relative to some financial measures of
worth); these stocks did particularly poorly in the last year. Fourth, we have
not yet achieved our goal of 300+ Portfolio stocks with which to adequately
represent the Index, leading to "tracking error," or the difference in
performance between our Portfolio and the Index itself.

For the fifth year in a row, the long-term trend of ultra-small stocks beating
large ones has been reversed. This year, the difference was a dramatic 30%.
There have been other years and other multi-year time periods when this has been
true, but there has never been an extended five-year period like this in the 73
years for which we have data. On a contrarian basis, this could be a good sign
for ultra-small stocks. I am patiently awaiting a turnaround.

The following table shows the dramatic difference in returns between the largest
and smallest companies over the last year. The first column presents ten stock
groupings ("deciles") according to a size methodology from the Center of
Research in Security Prices. The second column translates these groupings into
size labels based on data from Morningstar. The last column presents the total
return of all the companies in that size grouping over the last year. Since our
stocks are exclusively in the tenth decile, they suffered some of the poorest
returns.

<TABLE>
<CAPTION>
Company Returns
Decile Size 6/98-6/99
------ ---- ---------
<S> <C> <C>
1 Large 25.6%
2 Large 16.5%
3 Mid-size 11.2%
4 Mid-size 6.3%
5 Mid-size 7.9%
6 Small 5.3%
7 Small -0.6%
8 Small 7.3%
9 Micro-cap 3.5%
10 Ultra-small -4.2%
</TABLE>

Another factor which held back our performance in 1998 was our over-exposure to
"value" stocks, defined as those in more mature industries, or those growing at
a modest rate. This over-exposure was not by design and partly relates to the
fourth reason below--tracking error and the number of stocks we own.

While Bridgeway doesn't control the direction of the market, we have a lot of
control over items affecting tracking error. This warrants a separate section:

Tracking Error

TRANSLATION: In order to more accurately track the performance of the CRSP Index
of ultra-small companies, we believe we need 300-350 companies in the Portfolio.
We own about half this many now and are committed to increasing this number to
300 by the end of our current fiscal year.

<PAGE> 114

Tracking error in our first Fiscal Year was a positive 1.9%, nothing to get too
upset about both in magnitude (in my opinion) and certainly in direction. In our
second fiscal year our tracking error was negative 8.7% and this is
unacceptable. In our prospectus it states that "because of higher expense ratio
[author's note: higher than large company index funds; it is actually smaller
than the average of small-company retail index funds], higher transaction costs,
and investments in only a representative sample of index companies, the tracking
error will likely be significantly greater than" large company index funds. We
didn't mean this high, however.

The culprit in Fiscal Year 1999 was not the expense ratio, and certainly not
trading costs. Our expense ratio, 0.75%, was a small piece of the pie. Our
trading costs for this Portfolio are now actually negative, which means that we
buy stocks closer to the bid and sell closer to the ask. Based on our recent
trading performance, we actually add value to the Portfolio with most of our
trades, and more than covered the expense ratio during the course of a year. I
am very excited about this, but it is the topic of a future letter. The culprit
then, can only be that the actual companies we have invested in were not
statistically representative of the full index of 2400+ companies.

At the end of our fiscal year, we held 170 stocks in our Portfolio, up from 115
at the beginning of the year. We estimate we need 300-350 stocks in the
Portfolio to adequately track the index. I am committed to reaching this level
before the end of the current fiscal year and will keep you updated on our
progress. We should be able to do this without distributing any capital gains
this year. I want to point out that I don't have any reason to believe that our
tracking error is biased positively or negatively. In other words, I'm not
expecting to continually underperform our index, as has been the case at some
index funds.

The Worst Thing That Happened in Fiscal Year 1999

TRANSLATION: This is the section in which I annually reflect on the worst thing
that happened at Bridgeway. The worst thing in 1999 was my holding on to some
beaten-up ultra-small stocks too long. Although several Bridgeway Portfolios
felt the effects, it cost our Ultra-Small Company Portfolio (our actively
managed portfolio in ultra-small companies) shareholders on the order of seven
and a half percentage points in the middle of the worst ultra-small downturn
since 1974. It cost my personal retirement money about five percentage points. A
steep market correction is not the time to make such mistakes. Although I
believe that in the long-term there is a strong possibility that ultra-small
stocks will outperform large ones, sifting out the under-performing ones is
essential.

Last year, Fiscal Year 1998, we had a tie for first place: failure to launch a
web site and a small pricing error. I am pleased to report that we did launch
our web site in 1999 (www.bridgewayfund.com) and that we have not repeated the
pricing error. To put the latter mistake in perspective, most funds make pricing
errors sooner or later, but we shouldn't have made that one. In line with
frequent industry practice, the Adviser "made the Portfolio whole," reimbursing
the cost of the mistake. In 1999 we have been working hard to upgrade our
financial controls and compliance standards. I believe we now have some of the
most stringent pricing controls in the industry.

3
<PAGE> 115

The worst mistake in Fiscal Year 1999 was in the ultra-small holdings in several
of our portfolios, particularly the Ultra-Small Company Portfolio. This
Portfolio had its first negative fiscal year performance in its history, down
14.5%. A portion of this is beyond our control; ultra-small stocks experienced
the worst downturn since 1974 during the last year. They recovered partially,
and the asset class was down 4.2% for the year ended June 30. Value stocks did
much more poorly than growth stocks. Nevertheless, for the first time in four
years we underperformed our asset class benchmark in an asset class that should
be the easiest to beat. We underperformed our micro-cap value-oriented
competition by seven and a half percentage points. The mistake I made was
holding on to beaten-up stocks too long after their fundamentals had started to
deteriorate significantly. I should have learned this lesson from previous
downturns, even if they were not as severe as last year.

Bridgeway Fund Turns 5!

On August 5 we celebrated Bridgeway Fund's fifth birthday. The three original
portfolios: Ultra-Small Company, Aggressive Growth and Social Responsibility
were started on August 5, 1994. You will begin to see them listed in five-year
performance tables at the end of this month. Since the average tenure of a
mutual fund portfolio manager is three and a half years, I'm starting to feel
like an old timer.

How Can We Do It Better? - Disclosure of Manager Pay and Fund Ownership

TRANSLATION: This is a periodic section highlighting a management strategy
Bridgeway is using to improve our performance, operations or communications.
"Better" refers to our own history and/or the status of issues in our industry.
This time the subject is industry disclosure of executive pay and fund
ownership. I make a good, but not outrageous salary. I invest in our Fund. The
Bridgeway staff and the board of directors work hard to align the financial
incentives of the Adviser with those of Bridgeway shareholders. As an investor
in this passively managed Portfolio, you may not care at all about these issues,
as long as our expense ratio continues to be the lowest of all retail funds. If
so, you may want to skip this section.

Wall Street Journal, 3/18/98

4
<PAGE> 116

put a lot of his or her own money into a muni fund. And at any rate, the
fund companies could explain away this situation in a brief paragraph in
each shareholder report.

Scott Cooley, Morningstar.net, 5/21/98

And recently a somewhat dissenting view:

Gregg Wolper, Morningstar.net, 5/21/98

It's probably not worth the effort because it's also not possible. Mutual funds
companies are required to disclose the total fund ownership of all officers and
directors as a group. Executive salaries of publicly traded investment advisory
firms are available, but typically they don't include portfolio managers'
salaries. By now, you probably see where I'm headed.

Bridgeway is not afraid to break new ground in the industry. We were the first
fund company to provide shareholders with personalized performance numbers. We
were the first to close a portfolio at what is a laughably low level by industry
standards because we felt it was in shareholders' best interests. We have walked
away from legal brokerage commission structures (soft dollar commissions) which
would have taken money right out of shareholders' pockets and put it into the
Adviser's. We are not afraid to prohibit Bridgeway portfolio managers from
investing in a security that a Bridgeway portfolio might also own. (We were not
the first, but we are in a tiny minority.) Thus, Bridgeway Fund is my only
outlet for domestic stock market investing.

I want to answer some potential questions about the table and articles above.

5
<PAGE> 117

Does the Fund pay the Portfolio Managers' compensation?

How is the Portfolio Manager's compensation tied to Bridgeway Fund's
performance?

My compensation is tied to the performance of three of our actively managed
portfolios only. It relates to their performance in two ways. First, the
advisory fee for these three portfolios is a function of portfolio performance.
For example, the Aggressive Growth management fee varies from 0.2% of net assets
to 1.6% depending on our trailing five-year performance relative to the S&P 500.
(To put this in perspective, only 6% of domestic equity funds outperformed this
index in the most recent five years. If these funds adopted our structure, their
average fee would be only 0.3%, significantly less than the actual.) Assuming
recent net assets of $10 million, the Aggressive Growth annual management fee
can be as low as $20,000 or as high as $160,000. Financially, I am very focused
on our performance. A performance-based management fee greatly changes how the
Adviser thinks about the balance between performance and asset growth. I believe
most advisers are more concerned with asset growth than performance. In my
opinion, since asset growth is an enemy of fund performance in an actively
managed fund, I have a strong incentive not to let these portfolios grow past
the point of my managing them well.

The second and more direct way that my compensation is tied to my performance is
through my salary. Salaries for all full-time Bridgeway employees, including
myself, have a component tied to profitability of the Adviser and a component
tied to personal performance. The profitability of the Adviser is a function of
portfolio performance through the performance-based fee. (You can imagine that
the Bridgeway staff is quite interested in how well I do my job - besides the
fact that each and every one of them is also a shareholder.) My personal
performance is a function of specific goals, which are integrity (10%),
investment performance (50%), efficiency (10%), service (20%), and asset growth
(10%). The investment performance of our portfolios thus comprises half of the
evaluation score that determines my salary.

There is a lot of variability in your compensation from year to year. Why is
this?

Recent articles indicate that the median mutual fund manager total cash
compensation is $274,500. Couldn't you make more working at another fund
company?

Yes, currently that is true, but I can't imagine having nearly as much fun, joy
or input. There are several reasons my salary is lower. First, Bridgeway's asset
base is much smaller than the average fund. Second, after our expense ratio, we
still trail the S&P 500 slightly with two of our actively managed portfolios, so
our fees and my salary are commensurately lower. Third, by Bridgeway policy, no
employee's compensation can be more than seven times that of the lowest paid
employee. This isn't a constraining factor yet, but it will be before I reach
the industry average. This policy is important to our company's culture and
business strategy. The ratio of the highest to lowest paid employees among the
largest U.S. companies has grown from 44 to 1 in 1965 to 326 to 1 in 1997. And
while I'm not

<PAGE> 118

proposing that 7 to 1 should be a standard across corporate America, I do think
executive salaries have gotten out of hand.

If Bridgeway profits take off, won't you just be taking big distributions,
making your salary number irrelevant?

You can only invest in the stock market through Bridgeway Fund. How much of each
Portfolio do you own and why?

My target asset allocation is 62% Ultra-Small Company Portfolio, 5% Micro-Cap
Limited, 25% Aggressive Growth, and 8% Social Responsibility. My actual
valuation varies with portfolio fluctuations. At the end of June, my IRA
account, my wife's IRA, plus my interest in a small investment by Bridgeway
Capital Management was worth $116,000. I expect to be making additional
investments in Bridgeway Fund as my family college tuition expense declines and
I pay down my debt.

Second, since I am disciplined in ignoring short-term fluctuations, I seek out
asset classes and diversifying stock picking models with higher short-term
volatility coupled with historically higher average annual return. I avoid
investments that use leverage to gain additional stock market exposure. This is
how you really get in trouble in a major correction. Over the last fifteen years
my strategy has worked very well. It would not work as well in an extended
recession, but I don't anticipate recessions that last twenty years, or even
ten. Although, of course, theoretically they could.

Third, since most of my investments are through my IRA, it is easy to ignore the
effect of taxes. In the future, when I invest in Bridgeway Fund through a
taxable account, I still plan primarily to use our actively managed portfolios,
but I may hedge some by also investing a bit in our two extremely tax efficient
portfolios, Ultra-Small Index and Ultra-Large 35 Index.

<PAGE> 119

the advantage of being a more "focused" and very nimble portfolio. Aggressive
Growth relies primarily on models I have used for the longest period of time
personally, since 1985. Social Responsibility focuses on social issues I am
interested in, as well as financial performance.

Total Returns of Other Bridgeway Portfolios

Some shareholders have requested that we periodically present the performance of
all Bridgeway portfolios. The performance figures help illustrate the advantage
of diversification, even across some of our portfolios. This data is presented
in the more common format of calendar, rather than fiscal years.

* Includes the period 7/1/99 - 12/31/99 only

Bridgeway Formalizes Expense Limitations

At the August 18 meeting of the Fund's Board of Directors, the directors voted
unanimously to amend the management contract with the Adviser (Bridgeway Capital
Management) to include the 0.75% expense limitation in the body of the contract.
The expense reimbursement was previously an "undertaking" of the Adviser outside
of the management contract. Its inclusion in the contract means that the expense
limitation cannot be increased in the future without a vote of shareholders.
Since it was never our intention to raise the expense limitation, both the Fund
and the Adviser were happy to add this language to the contract. This change
will be effective in the contract and incorporated in our new prospectus dated
October 31, 1999.

Year 2000 Preparedness

Translation: Operationally, we consider ourselves ready. Investment-wise, we're
ignoring it. This is a conscious, reasonable, and intentional decision on our
part.

<PAGE> 120

comprise the index, regardless of their degree of preparedness. In the case of
our actively managed funds, we have no model variables for "Y2K," and plan to
continue to follow our current models in a disciplined way. We feel there is
just as high a risk from being out of the market for a period as there is
exposing our Portfolio to a Y2K-related market decline.

Conclusion

As always, we appreciate your feedback. We take it seriously and have made
continuing improvements because people have taken the time to write or call us.
The table above is just one example. Please keep your ideas coming.

Sincerely,

/s/ JOHN MONTGOMERY

John Montgomery
<PAGE> 121
BRIDGEWAY FUND, INC.
ULTRA-SMALL INDEX PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1999

<TABLE>
<CAPTION>
Industry Company Shares Value
-------- ------- ------ -----
<S> <C> <C>
Common Stock - 98.2%
Aerospace - 0.3%
Axsys Technologies, Inc. * 400 $ 4,600

Air Transport - 0.7%
Cade Industries, Inc. * 2,200 5,706

World Airways, Inc. * 3,300 5,156
-------
10,862
Aluminum & Products - 0.3%
InVision Technologies, Inc. * 1,000 5,125

Auto Parts - 3.8%

Hastings Manufacturing
Company 300 4,069
IMPCO Technologies, Inc. * 829 10,570
R & B, Inc. * 2,300 18,975
Raytech Corporation * 6,400 26,400
-------
60,014
Automobiles - 0.3%
McLaren Automotive Group Inc * 1,000 4,875

Banking - 8.7%
Carolina Fincorp, Inc. * 100 913
Codorus Valley Bancorp, Inc * 400 7,100
Community West Bancshares 800 7,800
Eagle BancGroup, Inc. * 400 8,850
FMS Financial Corporation * 700 6,563
FVNB Corporation * 200 5,900
Fidelity Federal Bancorp * 2,945 8,835
First Bancshares, Inc. 600 6,900
First Colonial Group, Inc. 315 7,403
Greater Community Bancorp * 500 5,219
Habercham Bancorp 600 8,850
Hallmark Capital Corporation * 1,100 12,788
Milton Federal Financial
Corporation * 600 7,650
NSD Bancorp, Inc. 300 6,600
Northrim Bank * 600 6,600
Northway Financial Inc. * 300 8,325
Peoples-Sidney Financial
Corporation * 600 6,000
SNB Bancshares, Inc. 500 10,000
Timberland Bancorp, Inc. * 500 5,875
-------
138,171
Beverages - 0.4%
Atlantic Premium Brands Ltd * 2,500 5,469

Broadcasting - 0.6%
Enterprise Software, Inc. * 1,200 9,600

Building - 2.5%
Dominion Homes, Inc. * 1,250 9,219
Engle Homes, Inc. 500 6,875
Meritage Corporation * 450 4,922
Miller Building Systems, Inc. * 1,000 5,875
Orleans Homebuilders, Inc. * 2,200 4,125
Perini Corporation * 500 2,844
The Rottlund Company, Inc. * 1,250 5,781
Sundance Homes, Inc. * 900 450
-------
40,091

Chemicals - 1.5%
Compass Plastics &
Technologies * 2,900 $ 363
JLM Industries, Inc. * 1,100 5,775
KMG Chemicals, Inc. 1,100 6,050
Pure World, Inc. * 2,640 11,385
-------
23,573

Data Processing - Hardware - 3.0%
Bell Microproducts, Inc. * 650 4,469
Printronix, Inc. * 700 9,800
Prophet 21, Inc. * 1,800 13,050
Rimage Corporation * 1,350 20,250
-------
47,569
Data Processing - Software & Services - 13.3%
ARDENT Software, Inc. * 1,400 29,750
BrightStar Information
Technology Group * 1,000 4,375
CFI Proservices * 500 5,625
Catalyst International, Inc. * 500 8,969
DA Consulting Group, Inc. * 850 5,100
FOURTH SHIFT Corporation * 1,200 4,425
Managed Care Solutions * 1,000 3,625
Mecon, Inc. * 600 4,500
MicroTouch Systems, Inc. * 500 7,438
Micros to Mainframes, Inc. * 2,500 9,063
Performance Technologies,
Inc. * 500 10,063
Printrak International Inc. * 700 5,163
SEEC, Inc. * 1,100 4,675
Unify Corporation * 7,500 101,250
Webhire Inc. * 1,600 7,200
-------
211,221
Drugs-Generic and OTC - 0.1%
Natural Alternatives
International, Inc. * 500 1,719

Education - Education - 0.4%
TRO Learning, Inc * 1,000 6,125

Electronics/Electric - 5.8%
Daktronics, Inc. * 500 5,875
Dataram Corporation * 600 5,925
EDO Corporation 2,700 19,575
Instron Corporation 400 8,100
PSC Inc. * 800 7,850
Phoenix Gold International, Inc. * 1,000 2,250
QualMark Corporation * 1,200 2,775
Vari-L Company * 1,100 9,419
Vicon Industries, Inc * 3,400 30,600
-------
92,369
Finance - 5.5%
Ace Cash Express, Inc. 1,200 16,950
Capital Associates, Inc. * 2,200 7,425
Central Financial Acceptance * 1,800 6,525
First Investors Financial
Services Group * 1,400 8,400
Lexington Global Asset
Managers, Inc. * 2,300 8,194
Maxcor Financial Group Inc. * 2,500 6,172
</TABLE>

<PAGE> 122

BRIDGEWAY FUND, INC.
ULTRA-SMALL INDEX PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS, continued
Showing percentage of total net assets
June 30, 1999

<TABLE>
<CAPTION>
Industry Company Shares Value
-------- ------- ------ -----
<S> <C> <C>
Finance, continued
Owosso Corporation * 1,000 5,750
Provident Financial
Holdings, Inc. * 300 6,000
TFC Enterprises, Inc. * 9,700 21,825
-------
87,241

Food - 2.9%
AMCON Distributing Company 1,700 17,000
Lucille Farms, Inc. * 2,000 6,250
Monterey Pasta Company * 8,400 22,050
-------
45,300
Food Serving - 1.6%
Ark Restaurants Corporation. * 1,700 18,700
Roadhouse Grill, Inc. * 1,100 7,081
-------
25,781
Graphic Arts - 0.8%
Baldwin Technology
Company, Inc. * 2,000 5,875
PrimeSource Corporation * 1,000 6,125
-------
12,000
Health Care Facilities - 0.7%
Health Power, Inc. * 2,000 4,331
MIM Corporation * 1,550 3,778
NextHealth, Inc. * 2,300 2,588
-------
10,697
Home Furnishings - 3.3%
DMI Furniture Inc * 3,400 10,200
General Housewares Corporation* 400 7,775
Winsloew Furniture, Inc. * 1,000 33,625
-------
51,600
Household Products - 0.6%
Safety 1st, Inc. * 1,500 8,813

Housewares - 0.4%
Home Products
International, Inc. * 800 6,800

Insurance - 0.8%
21st Century Holding Company * 1,000 6,875
Bancinsurance Corporation * 1,100 5,775
-------
12,650
Jewelry, Silverware, Watches - 3.1%
Jan Bell Marketing, Inc. * 7,100 24,850
Michael Anthony Jewelers, Inc. * 4,200 17,063
OroAmerica, Inc. * 1,100 7,700
-------
49,613
Leather & Shoes - 0.7%
Candie's Inc. * 931 1,902
Tandy Brands Accessories, Inc. * 500 8,563
-------
10,465
Leisure-Amusement - 2.1%
Integrity Incorporated * 2,200 6,738
Noodle Kidoodle, Inc. * 1,200 6,375
Oshman's Sporting Goods, Inc. * 1,400 3,763
SCP Pool Corporation * 423 10,945
Toymax International, Inc. * 1,300 6,663
-------
34,484

Machinery - 1.7%
Denali Inc. * 500 $ 3,750
Riviera Tool Company * 840 4,148
Scherer Healthcare, Inc. * 2,500 7,500
Summa Industries * 650 8,409
Total Containment, Inc. * 1,000 3,000
-------
26,807
Medical Equipment/Supplies - 0.7%
HPSC, Inc. * 600 5,700
Interpore International * 890 3,671

Meridian Medical
Technologies, Inc. * 300 1,913
-------
11,284
Metal/Other Fabricating - 0.6%
The Eastern Company 555 9,921

Oil & Gas - 3.5%
Bolt Technology Corporation * 1,800 10,238
Callon Petroleum Company * 375 3,867
Columbus Energy Corporation * 2,090 12,540
Dawson Geophysical Company * 500 5,031
Infinity, Inc. * 3,000 6,750
Maynard Oil Company * 750 7,688
Meteor Industries, Inc. * 2,900 9,063
-------
55,177
Publishing - 0.2%
PolyVision Corporation * 1,500 3,844

Retail Stores - 9.9%
Andersons Inc. 950 12,113
Braun's Fashions Corporation * 2,400 34,350
Cache, Inc. * 1,100 7,563
Calloway's Nursery, Inc. * 2,000 2,938
Catherines Stores Corporation * 2,000 24,750
Cost-U-Less, Inc. * 1,000 4,750
Creative Computers, Inc. * 480 3,840
Eagle Food Centers, Inc. * 500 1,547
FFP Marketing Company, Inc. * 800 2,600
Jos. A. Bank Clothiers, Inc. * 1,000 6,375
Nitches, Inc. * 1,300 4,631
Pamida Holdings Corporation * 1,300 14,950
Rag Shops, Inc. * 3,600 8,775
Ultimate Electronics, Inc. * 800 14,550
Wilsons The Leather
Experts Inc. * 500 8,219

World of Science, Inc. * 2,000 4,250
-------
156,201
Retail Stores - Food Supermarkets - 0.2%
Village Super Market, Inc. * 300 3,863

Services - 7.9%
Advanced Marketing
Services, Inc. * 900 13,500
American Physician
Partners, Inc. * 1,000 7,188
Business Resource Group * 6,100 20,206
CORRPRO COS INC * 2,125 18,328
FTI Consulting, Inc. * 1,800 9,450
</TABLE>

<PAGE> 123

BRIDGEWAY FUND, INC.
ULTRA-SMALL INDEX PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS, continued
Showing percentage of total net assets
June 30, 1999

<TABLE>
<CAPTION>
Industry Company Shares Value
-------- ------- ------ -----
<S> <C> <C>
Services, continued
GRC International, Inc. * 2,000 17,000
Innodata Corporation * 1,000 11,313
InterDent, Inc. * 835 6,106

International Total Services, Inc.* 2,200 7,013
Opinion Research Corporation * 900 5,063
Outsource International, Inc. * 1,100 4,194
VDI Media * 1,000 6,500
-----------
125,861
Steel / Iron - 0.2%
Cold Metal Products, Inc. * 1,300 3,494

Steel/Iron - 0.9%
Bayou Steel Corporation * 1,000 3,750
Kentucky Electric Steel, Inc. * 1,700 5,738
Webco Industries, Inc. * 900 4,613
-----------
14,101
Telecommunications - 3.0%

Able Telcom Holding
Corporation * 2,200 15,950
Bogen Communications
International, Inc. * 3,000 19,313
Comtech Telecommunications
Corporation * 650 6,906
Corsair Communications, Inc. * 1,100 4,675
-----------
46,844
Textiles - 0.4%
The Dixie Group, Inc. 700 5,928

Transportation/Freight - 3.2%
Consolidated Delivery &
Logistics, Inc. * 4,800 16,800
Forward Air Corporation * 1,200 33,750
-----------
50,550
Trucking - 1.4%
Landair Corporation * 600 2,400
P.A.M. Transportation
Services, Inc. * 600 5,925

Trucking, continued
Smithway Motor Xpress
Corporation * 600 $ 6,000
USA Truck, Inc. * 900 8,241
-----------
22,566
Utilities-Gas - 0.2%
Delta Natual Gas Company, Inc. 230 3,824
===========

Total Common Stock (Identified Cost $1,347,118) $ 1,557,092

Short-term Investments - 1.7%
Money Market Funds - 1.7%
Expedition Money Market Fund 27,034 27,034
-----------

Total Short-term Investments (Identified Cost $27,034) $ 27,034
-----------

Total Investments - 99.9% $ 1,584,126

Other Assets and Liabilities, net - 0.1% 2,039
===========

Total Net Assets - 100.0% $ 1,586,165
===========
</TABLE>

* Non-income producing security as no dividends were paid during the period from
July 1, 1998 to June 30, 1999.

** The aggregate identified cost on a tax basis is $1,374,152. Gross unrealized
appreciation and depreciation were $364,165 and $154,191, respectively, or net
unrealized appreciation of $209,974.

See accompanying notes to financial statements.

<PAGE> 124

BRIDGEWAY FUND, INC. - ULTRA-SMALL INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 1999

<TABLE>
<S> <C>
ASSETS:
Investments at value (cost - $1,374,152) $ 1,584,126
Receivable from adviser 671
Receivable for dividends 48
Prepaid expenses 7,151
Deferred organization costs 2,792
------------
Total assets 1,594,788
------------

LIABILITIES:
Bank overdraft 641
Payable for shares redeemed 2,705
Payable for management fee 22
Accrued expenses 5,255
------------
Total liabilities 8,623
------------
NET ASSETS (319,952 SHARES OUTSTANDING) $ 1,586,165
============

Net asset value, offering and redemption price per share ($1,586,165/319,952) $ 4.96
============

NET ASSETS REPRESENT:
Paid-in capital $ 1,710,546
Undistributed net realized loss (334,355)
Net unrealized appreciation of investments 209,974
------------
NET ASSETS $ 1,586,165
============
</TABLE>

BRIDGEWAY FUND, INC. - ULTRA-SMALL INDEX PORTFOLIO
STATEMENT OF OPERATIONS
For the year ended June 30, 1999

<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 1,431
Interest 1,828
------------
Total income 3,259

EXPENSES:
Management fees 6,753
Accounting fees 7,861
Audit fees 6,116
Custody 4,824
Amortization of organization costs 905
Insurance 179
Legal 439
Registration fees 4,957
Directors' fees 725
------------
Total expenses 32,759
Less fees waived (14,614)
Less expenses reimbursed (8,015)
------------
Net expenses 10,130
------------

NET INVESTMENT LOSS (6,871)
------------

NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized loss on investments (334,355)
Net change in unrealized appreciation 181,969
------------
Net realized loss and unrealized appreciation (152,386)
------------

NET DECREASE IN ASSETS RESULTING FROM OPERATIONS $ (159,257)
============
</TABLE>

See accompanying notes to financial statements

<PAGE> 125
BRIDGEWAY FUND, INC. - ULTRA-SMALL INDEX PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
Year ended July 31, 1997* to
INCREASE (DECREASE) IN NET ASSETS: June 30, 1999 June 30, 1998
------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment loss $ (6,871) $ (4,038)
Net realized (loss) gain on investments (334,355) 837
Net change in unrealized appreciation 181,969 28,005
------------ ------------
Net increase resulting from operations (159,257) 24,804
------------ ------------
Distributions to shareholders:
From net investment income 0 0
From realized gains on investments 0 0
------------ ------------
Total distributions to shareholders 0 0
FUND SHARE TRANSACTIONS:
Proceeds from sale of shares 989,238 2,955,365
Reinvestment of dividends 0 0
Cost of shares redeemed (773,113) (1,450,872)
------------ ------------
Net increase from Fund share transactions 216,125 1,504,493
------------ ------------
Net increase in net assets 56,868 1,529,297
NET ASSETS:
Beginning of period 1,529,297 0
------------ ------------
End of period $ 1,586,165 $ 1,529,297
============ ============

Number of Fund shares:
Sold 197,735 534,300
Issued on dividends reinvested 0 0
Redeemed (146,743) (265,340)
------------ ------------
Net increase 50,992 268,960
Outstanding at beginning of period 268,960 0
------------ ------------
Outstanding at end of period 319,952 268,960
============ ============
</TABLE>

BRIDGEWAY FUND, INC. - ULTRA-SMALL INDEX PORTFOLIO
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the period)

<TABLE>
<CAPTION>
Year ended July 31, 1997* to
June 30, 1999 June 30, 1998
------------- -----------------
<S> <C> <C>
PER SHARE DATA
Net asset value, beginning of period $ 5.69 $ 5.00
------------ ------------
Income (loss) from investment operations:
Net investment loss (0.02) (0.02)
Net realized and unrealized gain (0.71) 0.71
------------ ------------
Total from investment operations (0.73) 0.69
------------ ------------
Less distributions to shareholders:
Net investment income 0.00 0.00
Net realized gains 0.00 0.00
------------ ------------
Total distributions 0.00 0.00
------------ ------------
Net asset value, end of period $ 4.96 $ 5.69
============ ============

TOTAL RETURN [1] (12.8%) 13.8%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period $ 1,586,165 $ 1,529,297
Ratios to average net assets: [2]
Expenses after waivers and reimbursements 0.75% 0.75%
Expenses before waivers and reimbursements 2.43% 1.74%
Net investment loss after waivers and reimbursements (0.51%) (0.38%)

Portfolio turnover rate [2] 48.29% 61.70%
</TABLE>

[1] Not annualized.
[2] Annualized.
* July 31, 1997 commencement of operations

See accompanying notes to financial statements.

<PAGE> 126
BRIDGEWAY FUND, INC.
ULTRA-SMALL INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS

1. Organization:

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

The Fund is organized as a series fund and has 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 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.

Distributions to Shareholders

Distributions to shareholders are recorded when declared. The Fund
distributes net realized capital gains, if any, to its shareholders at
least annually, if not offset by capital loss carryovers. Distributions
of net investment income and realized short-term capital gains, if any,
are taxable as ordinary income to shareholders. 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. These differences are primarily due to the
differing treatment of net operating losses and tax allocations.

Use of Estimates in Financial Statements

<PAGE> 127

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

2. Significant Accounting Policies, Continued:

Risks and Uncertainties

The Fund invests in stocks. Such investments are exposed to various
risks, such as interest rate, market and credit. Due to the level of risk
associated with certain investments and the level of uncertainty related
to changes in the value of investments, 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.

12b-1 Plan

Other

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

Assets in the Ultra-Small Index Portfolio are very low, and may remain so
in the immediate future. Because commission cost per trade is
unacceptably high as a percentage of assets, the Adviser reimburses the
Portfolio for any commissions above one cent/share. The Adviser expects
to continue this practice until portfolio net assets reach at least $5
million.

3. Management Contract:

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

4. Related Party Transactions:

One director of the Fund, John Montgomery, is an owner and director of
the Adviser. Under the Investment Company Act of 1940 definitions, he is
considered to be "affiliated" and "interested." Compensation of Mr.
Montgomery is borne by the Adviser rather than the Fund. The other
officers 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.

The Adviser has agreed to reimburse the Ultra-Small Index Portfolio for
any operating expenses above 0.75%. To achieve this expense level the
Adviser has waived both the management fees and accounting fees for the
year ended June 30, 1999. The Adviser expects to continue this voluntary
level of reimbursement, in the foreseeable future.

5. Custodial Agreement:

6. Cost, Purchases and Sales of Investment Securities:

Investments have the same cost for tax and financial statement purposes.
Aggregate purchases and sales of investment securities other than cash
equivalents were $835,651, and $633,859, respectively for the year ended
June 30, 1999.

<PAGE> 128

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

7. Federal Income Taxes:

At June 30, 1999 the fund had $152,824 in capital loss carryforwards for
federal income tax purposes expiring June 30, 2007. The Fund incurred and
elected to defer post-October 31 net capital losses of $181,531 to the
year ended June 30, 2000.

Permanent differences in the character of income and distributions in
financial statements and tax basis have been reclassifed to paid-in
capital. During the period ended June 30, 1999 the following
reclassifications were made:

<TABLE>
<S> <C>
Paid-in capital $(6,034)
Undistributed net investment income 6,871
Undistributed net realized gain (837)
</TABLE>

<PAGE> 129
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of Bridgeway Fund, Inc.
and Shareholders of the Ultra-Small Index Portfolio:

In our opinion, the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, and the related statements of operations
and changes in net assets and financial highlights present fairly, in all
material respects, the financial position of the Ultra-Small Index Portfolio
(one of the portfolios constituting Bridgeway Fund, Inc) at June 30, 1999, the
results of its operations for the year then ended, the changes in its net assets
and the financial highlights for the year then ended and for the period from
July 31, 1997 (commencement of operations) to June 30, 1998, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at June 30, 1999 by correspondence with the
custodian, provides a reasonable basis for the opinion expressed above.

/s/ PRICEWATERHOUSECOOPERS LLP

Houston, Texas
August 23, 1999
<PAGE> 130
[BRIDGEWAY LETTERHEAD]

August 27, 1999

Dear Fellow Micro-Cap Limited Shareholder,

Our Portfolio was up 35.7%, making it #1 of 3,820 domestic equity funds in the
June quarter. For our first fiscal year, which included the worst micro-cap
downturn since 1974, we were up 27.6%, 23.7% ahead of our market benchmark of
micro-cap companies. I am elated with this first year record.

Fiscal Year 1999: A Brief Review

Watching the stocks chosen by my statistical models has been very interesting
this twelve months. We felt the full impact of the micro-cap bear market last
fall with a September quarter decline of 24%, 0.8% worse than our micro-cap
benchmark. (Some would not agree with me that this was interesting; it certainly
was not pleasant.) Our telecommunications companies led the decline; all three
had declines of more than 50% in less than three months. However, the Portfolio
came roaring back in the December quarter (up 41.6%) as our unusually heavy
focus on technology (35% of net assets) paid off nicely. In the March quarter we
lost some of the previous quarter's return as four of our data processing firms
worsened what would have been a mediocre quarter. Our micro-cap focus finally
paid off in the June quarter; micro-caps as a group beat the performance of
large companies for the first time in the one-year history of the Portfolio. Our
Portfolio was firing on all cylinders, and we experienced strong gains across
most sectors. The Portfolio ended the fiscal year up 27.6%, ahead of both small
and large company indexes. I like the final return, but I hope not to repeat the
roller coaster ride any time soon.

The table below presents our June quarter and one-year (also inception-to-date)
financial results according to the formula required by the SEC. The graph
presents a quarter-by-quarter view.

June Qtr. 1 Year
4/1/99 to 6/30/99 7/1/98 to 6/30/99
----------------- -----------------
<S> <C> <C>
Micro-Cap Limited Portfolio 35.7% 27.6%
Lipper Small-Cap Stock Funds(1) 16.0% 3.11%
Russell 2000 (small growth stocks)(2) 15.6% 1.5%
CRSP Cap-Based Portfolio 9 Index(3) 17.5% 3.5%
</TABLE>

(1) The Lipper Small Cap Stock Funds is an index of small-cap funds compiled by
Lipper Analytical Services, Inc. (2) The Russell 2000 is an unmanaged index of
small stocks, with dividends reinvested. (3)The CRSP Cap-Based Portfolio 9 Index
is an unmanaged index of 853 micro-cap companies compiled by the Center for
Research in Security Prices, with dividends reinvested. Past performance does
not guarantee future returns.

Fund /Index Name Total Value
---------------- -----------
<S> <C>
Bridgeway Micro-Cap Limited Portfolio $12,760
CRSP Cap-based Portfolio 9 Index $10,355
Lipper Small Company Funds $10,311
Russell 2000 Index $10,150
</TABLE>

<PAGE> 131

Detailed Explanation of Fiscal Year Performance--The Movers and the Shakers

TRANSLATION: Our technology stocks carried the day. One stock appreciated 376%,
adding over seven percentage points to our return.

Investing 30-35% of the Portfolio in technology stocks helped our performance
significantly in the first year. So did hitting a handful of home runs. Nine
appreciated more than 50%. Five of these nine companies more than doubled. Five
of the nine were in the technology sector.

Our top performing stock for the year, Power Integrations, makes electronic
circuits for converting from DC to the AC power widely used in personal
computers, cell-phones, and industrial applications. This largely undiscovered
growth company was extremely cheap when we bought it. Its revenues, earnings,
and cash flow were growing; it was gaining market share, had essentially no debt
and was building a cash hoard. After a 376% increase, Wall Street has definitely
caught on. This company represented about three and a half percent of our
holdings based on what we paid for the shares, but it added over seven
percentage points to our return. Here's the list of our top performing stocks:

Rank Description Industry % Gain
---- ----------- -------- ------
<S> <C> <C> <C>
1 Power Integrations, Inc. Electronics/Electric 375.6%
2 The Children's Place Retail Stores 268.0%
3 Alpha Industries, Inc. Electronics/Electric 172.0%
4 Advanced Digital Information Data Processing/Hardware 158.8%
5 Salton, Inc Electronics/Electric 105.1%
6 Frontier Airlines Transport/Air 91.1%
7 Titan Corp. Electronics/Electric 69.0%
8 SCP Pool Corp. Leisure/Sports-Outdoor Equipment 65.6%
9 Pegasus Systems, Inc. Data Processing/Services 62.9%
</TABLE>

I'd like to use this list to make the case that I'm a genius stock picker. But
I'm not. I'm just disciplined in following our quantitative models and certain
principles of risk management.

Point number one. I'm no genius; not all the stocks in the Portfolio went up.
Don't forget the three telecommunications stocks discussed on the first page.
I'm just glad we have certain internal guidelines for diversification and
managing risk, or this year might not have looked so pretty. The list of largest
annual decliners is reported on the next page. Fortunately, my stock-picking
models don't have to be right all the time to beat the market; they just have
either to be right a majority of the time or occasionally "hit a home run." In
our first fiscal year, we hit several home runs. Keep in mind, however, that I'm
not trying to make Micro-Cap Limited the number one diversified domestic mutual
fund in any one quarter or year. We are trying to get in the top 5% of fund
rankings long term by trying to beat the market in most years. Although we've
seen a couple of good quarters, I hope to continue to climb the ladder with
good, consistent annual performance.

Point number two. I'm no genius; for example, I can't even really tell you why
Alpha Industries went up so much last year. The company has obviously been doing
some good things in the marketplace. Earnings doubled last year. The stock
looked very cheap when we bought it and rather expensive when we sold it. I have
never read an analyst report on the stock. (I once tried analyst recommendations
as a variable in my models. It correlated negatively with stock price, so now I
ignore them altogether.) Although I'm trained as an engineer, I can't even
explain completely what Alpha Industries' product description means. What are
"galliumarsenide integrated circuits, silicon and GaAs discrete semiconductors
and ceramic products anyway? I can't even pronounce this. Maybe we could just
call them some of the guts of a cell-phone. Well, I could resort to various
tautologies (needless repetition in different words) to describe Alpha
Industries' performance. "Demand for the shares exceeded supply." That sounds
good. Sometimes people think it helps if we can label a phenomenon, even though
we don't understand it. This is especially true when we think other people think
we are supposed to know. When my first daughter was born my wife had an
emergency Caesarian section after many hours in labor. The official reason the
doctor gave was "failure to progress." I think I knew that. Besides, my wife had
worked really hard and we had a beautiful baby; I

<PAGE> 132

didn't see why we should call it a failure. Maybe we should just call Alpha
Industries' ascent "failure to go down."

Point three. I'm no genius; just ask any of my siblings, children or employees.
Actually, we all respect each other; but I assure you I have never fooled them.
I'm sure I haven't fooled you either.

As wonderful as the list of top performers is, obviously not everything went up
during the year. The declining list isn't as pretty:

Rank Description Industry % Decline
---- ----------- -------- ---------
<S> <C> <C> <C>
1 Summit Design, Inc. Data Processing/Software -72.0%
2 Media Arts Group Housewares -67.4%
3 Information Advantage, Inc Data Processing/Software -62.5%
4 DA Consulting Group Data Processing/Computer Services -61.3%
5 The Good Guys, Inc. Retail Stores -59.1%
6 Adaptive Broadband Corp. Telecommunications/Equipment -56.2%
7 Hvide Marine, Inc. Oil & Gas -55.3%
8 Health Management Systems Data Processing/Software -52.7%
9 Inso Corporation Data Processing/Software -50.5%
</TABLE>

Summit Design is an example of a company I'd just as soon forget. After twelve
quarters of steadily and dramatically increasing sales and earnings, this
supplier of engineering design and analysis software reported a 35% drop in
revenues and no earnings. Wall Street did not like this surprise; my model also
choked. Since we sold our position, the company announced a quarterly loss and
has begun looking for a new CEO.

The two tables above do illustrate one of the favorable characteristics of
micro-cap stocks. In the last year, there were an equal number of greatly
appreciating and greatly declining stocks. However, the most a stock price can
go down is 100%, while it is possible to have a five-fold or more increase. It
only takes one real winner to cover the pain of several losers. In fact, the top
two performers above more than made up for all nine worst-performing stocks.

Top Ten Holdings

The following list will give you a flavor of the diversity and level of
concentration of our Portfolio. We rarely put more than 4% of portfolio net
assets in any one company. We often end up with stocks that represent more
concentrated positions through appreciation, rather than by any decision on my
part to load up on a single stock. Due to my commitment to diversification, I
have trimmed several of our top ten holdings since the quarter end. The ten
stocks below account for nearly half of Portfolio net assets, which is much more
concentrated than Bridgeway's ultra-small portfolios and most micro-cap funds at
other firms. This factor will probably make our Portfolio a bit more volatile,
but will also hopefully add to long-term return. At the end of the fiscal year,
the Portfolio held 46 stocks, which are listed in the attached financial
statements. Here are the top ten:

Rank Description Industry % Net Assets
---- ----------- -------- ------------
<S> <C> <C> <C>
1 Power Integrations Electronics/Electric 8.2%
2 Salton, Inc. Electronics/Electric 6.5%
3 Advanced Digital Information Data Processing/Hardware 6.2%
4 Landair Services Transportation 6.1%
5 Wiztec Solutions Data Processing/Software 4.2%
6 Ladd Furniture, Inc Home Furnishings 4.0%
7 Arkansas Best Group Trucking 3.7%
8 Children's Place Retail Stores Retail Stores 3.6%
9 Innotrac Corp. Services 3.5%
10 O'Sullivan Industries Home Furnishings 3.4%
----
Total 49.4%
</TABLE>

<PAGE> 133

Disclaimer

Bridgeway Fund Turns 5!

The Worst Thing That Happened in Fiscal Year 1999

TRANSLATION: This is the annual section in which I reflect on the worst thing
that happened at Bridgeway. The worst thing for 1999 was my holding on to some
beaten up ultra-small stocks too long. Although several Bridgeway portfolios
felt the effects, it cost our Ultra-Small Company Portfolio shareholders on the
order of seven and a half percentage points in the middle of the worst
ultra-small stock downturn since 1974. It cost my personal retirement money
about five percentage points. A steep market correction is not the time to make
such mistakes. Although I believe that in the long-term there is a strong
possibility that ultra-small stocks will outperform large stocks, sifting out
the under-performing ones is essential.

Last year, Fiscal Year 1998, we had a tie for first place: failure to launch a
web site and a small pricing error. I am pleased to report we did launch our web
site in 1999 (www.bridgewayfund.com), and we have not repeated the pricing
error. To put this latter mistake in perspective, most funds make pricing errors
sooner or later, but we shouldn't have made this one. In 1999 we have been
working hard to upgrade our financial controls and compliance standards. I
believe we now have some of the most stringent pricing controls in the industry.

The worst Bridgeway mistake in Fiscal Year 1999 was in the ultra-small company
holdings in several of our portfolios, particularly the Ultra-Small Company
Portfolio. A portion of this is beyond our control; ultra-small stocks
experienced the worst downturn since 1974 during last year. They recovered
partially, and the asset class was down 4.2% for the year ended June 30.
(Micro-caps stocks had a rough year too, but ultra-small ones were almost 8%
worse.) Value stocks did much more poorly than growth stocks. (Value oriented
micro-cap funds underperformed growth oriented ones by and astounding 47% in the
fiscal year.) Nevertheless, we underperformed our asset class benchmark for the
first time in four years in an asset class that should be the easiest to beat.
We underperformed our micro-cap, value-oriented competition by seven and a half
percentage points. The mistake I made was holding on to beaten up stocks too
long after their fundamentals had started to significantly deteriorate. I should
have learned this lesson from previous downturns, even if they were not as
severe as last year.

How Can We Do It Better? - Disclosure of Manager Pay and Fund Ownership

<PAGE> 134

issues in our industry. This time the subject is industry disclosure of
executive pay and fund ownership. I make a good, but not outrageous salary. I
invest in our Fund. The Bridgeway staff and the board of directors work hard to
align the financial incentives of the Adviser with those of Bridgeway
shareholders.

Wall Street Journal, 3/18/98

Scott Cooley, Morningstar.net, 5/21/98

And recently a somewhat dissenting view:

Gregg Wolper, Morningstar.net, 5/21/98

Bridgeway is not afraid to break new ground in the industry. We were the first
fund company to provide shareholders with personalized performance numbers. We
were the first to close a portfolio at what is a laughably low level by industry
standards because we felt it was in shareholders' best interests. We have walked
away from legal brokerage commission structures (soft dollar commissions) which
would have taken money right out of shareholders' pockets and put it into the
Adviser's. We are not afraid to prohibit Bridgeway portfolio managers from
investing in a security which a Bridgeway portfolio might also own. Thus,
Bridgeway Fund is my only outlet for domestic stock market investing.

<PAGE> 135

Total Capital Total Net
Year Compensation Contributions Cash Flows
---- ------------ ------------- ----------
<S> <C> <C> <C> <C>
1993 (211,000) (211,000)
1994 (217,000) (217,000)
1995 70,284 (10,000) 60,284
1996 29,833 (12,000) 17,833
1997 158,041 158,041
1998 93,096 93,096
</TABLE>

Total compensation in the table above includes SEP IRA contributions of
$2,391, shareholder distributions of $8,200 and loans of $36,625. These
figures are from the Adviser's unaudited financial statements.

I want to answer some potential questions about the table and articles above.

Does the Fund pay the Portfolio Managers' compensation?

How is the Portfolio Manager's compensation tied to Bridgeway Fund's
performance?

My compensation is tied to portfolio performance in two ways. First, the
advisory fee, which the Micro-Cap Limited Portfolio pays to the Adviser, is a
function of portfolio performance. Specifically, the management fee varies from
0.2% of net assets to 1.6% depending on our trailing five-year performance
relative to the CRSP "9" Index. (To put this in perspective, only 6% of domestic
equity funds outperformed an index of similar size companies in the most recent
five years. If these funds adopted our structure, their average fee would be
only 0.3%, significantly less than the actual.) Assuming recent net assets of
$10 million, the Micro-Cap Limited annual management fee can be as low as
$20,000 or as high as $160,000. Financially, I am very focused on our
performance. A performance-based management fee greatly changes how the Adviser
thinks about the balance between performance and asset growth. I believe most
advisers are more concerned with asset growth than performance. In my opinion
since asset growth is an enemy of fund performance in an actively managed fund,
I have a strong incentive not to let our fund grow past the point of my managing
it well.

The second and more direct way that my compensation is tied to my performance is
through my salary. Salaries for all full-time Bridgeway employees, including
myself, have a component tied to profitability of the Adviser and a component
tied to personal performance. The profitability of the Adviser is a function of
portfolio performance through the performance-based fee. (You can imagine that
the Bridgeway staff is quite interested in how well I do my job - besides the
fact that each and every one of them are also Fund shareholders in one or more
Bridgeway portfolios.) My personal performance is a function of specific goals,
which are integrity (10%), investment performance (50%), efficiency (10%),
service (20%), and asset growth (10%). The investment performance of our
Portfolios thus comprises half of the evaluation score that determines my
salary.

There is a lot of variability in your compensation from year to year. Why is
this?

Recent articles indicate that the median mutual fund manager total cash
compensation is $274,500. Couldn't you make more working at another fund
company?

<PAGE> 136

Yes, currently that is true, but I can't imagine having nearly as much fun, joy
or input. There are several reasons my salary is lower. First, Bridgeway's asset
base is much smaller than the average fund. Second, after our expense ratio, two
of our portfolios still trail the S&P 500, so our fees and my salary are
commensurately lower. Third, by Bridgeway policy, no employee's compensation can
be more than seven times that of the lowest paid employee. This isn't a
constraining factor yet, but it will be before I reach the industry average.
This policy is important to our company's culture and business strategy. The
ratio of the highest to lowest paid employees among the largest U.S. companies
has grown from 44 to 1 in 1965 to 326 to 1 in 1997. And while I'm not proposing
that 7 to 1 should be a standard across corporate America, I do think that
executive salaries have gotten out of hand.

If Bridgeway profits take off, won't you just be taking big distributions,
making your salary number irrelevant?

Some day this could be the case. We are a for-profit corporation; I am not the
only shareholder, and I did make a significant investment to found Bridgeway.
However, let me fill you in on some of Bridgeway's unusual distribution plans.
Part of Bridgeway Capital Management's mission statement is to contribute just
over half of its own profits to charitable and non-profit organizations.
Eventually I do intend to recover the capital contributions I made to Bridgeway.
Before this is complete, we will be donating at least 10% of annual profits to
charities; afterward, just over half. The other portion of our profits is
available for working capital and for shareholder distributions. I have
committed to contribute 20% of my Bridgeway Capital Management shares to an
employee stock ownership plan. I have a life goal of giving away $100 million
annually when I retire. If I succeed at this, I will have helped make many Fund
shareholders quite happy along the way. (Remember our performance-based fees; we
only do well when our Fund shareholders do well.) As you may be able to tell, I
take great joy in both receiving and giving. From time to time I encourage our
shareholders in the area of generosity, which offends a few, but "lights up"
others. Some shareholders don't care what we do with our money as long as the
Fund is making money for them.

You can only invest in the stock market through Bridgeway Fund. How much of each
Portfolio do you own and why?

Second, since I am disciplined in ignoring short-term fluctuations, I seek out
asset classes and diversifying stock picking models with higher short-term
volatility coupled with historically higher average annual return. I avoid
investments that use leverage to gain additional stock market exposure. This is
how you really get in trouble in a major correction. Over the last fifteen years
my strategy has worked very well. It would not work as well in an extended
recession, but I don't anticipate recessions that last twenty years, or even
ten. Although, of course, theoretically they could.

Third, since most of my investments are through my IRA, it is easy to ignore the
effect of taxes. The Micro-Cap Limited Portfolio is not one of our more tax
efficient portfolios, although as portfolio manager I pay attention to tax
consequences when I think it will not adversely affect total returns. I do, for
example, use a tax lot accounting method to maximize short-term losses and
long-term gains. In the future, when I

<PAGE> 137

invest in Bridgeway Fund through a taxable account, I still plan primarily to
use our actively managed portfolios, but I may hedge some by also investing a
bit in our two extremely tax efficient portfolios, Ultra-Small Index and
Ultra-Large 35 Index.

The following are factors that have affected my allocation between portfolios.
The ultra-small asset class has the highest historical average annual return of
any asset class I know. Micro-Cap Limited has the advantage of being a more
"focused" and very nimble portfolio. Aggressive Growth relies primarily on
models I have used for the longest period of time personally, since 1985. Social
Responsibility focuses on social issues I am interested in, as well as financial
performance.

Total Returns of Other Bridgeway Portfolios

8/5/94 to 1/1/99 to Avg. Ann. Avg. Ann. Avg. Ann.
12/31/94 1995 1996 1997 1998 6/30/99 Since 8/94 Since 7/97 Since 6/98
-------- ---- ---- ---- ---- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aggressive Growth 8.8 27.1 32.2 18.3 19.3 25.5 27.1 23.4 33.4
Ultra-Small Company -2.8 39.8 29.7 38.0 -13.1 1.4 16.9 -5.1 -14.5
Social Responsibility 1.5 30.3 16.2 27.5 37.8 11.3 25.2 28.7 26.2
Ultra-Small Index -1.8 1.4 -0.4 -12.8
Ultra-Large 35 Index 39.1 14.1 27.4 30.3
Micro-Cap Limited 7.6* 18.6 27.6

*Includes the period 7/1/99 - 12/31/99 only

Bridgeway Formalizes Expense Limitations

At the August 18 meeting of the Fund's Board of Directors, the directors voted
unanimously to amend the management contract with the Adviser (Bridgeway Capital
Management) to include the 1.9% expense limitation in the body of the contract.
The expense reimbursement was previously an "undertaking" of the Adviser outside
of the management contract. Its inclusion in the contract means that the expense
limitation cannot be increased in the future without a vote of shareholders.
Since it was never our intention to raise the expense limitation, both the Fund
and the Adviser were happy to add this language to the contract. This change
will be effective in the contract and incorporated in our new prospectus dated
October 31, 1999.

Year 2000 Preparedness

TRANSLATION: Operationally, we consider ourselves ready. Investment-wise, we're
ignoring it. This is a conscious, reasonable, and intentional decision on our
part.

<PAGE> 138

passively hold the companies (or in the case of Ultra-Small Index, a sample of
the companies) which comprise the index, regardless of their degree of
preparedness. In the case of our actively managed funds, we have no model
variables for "Y2K," and plan to continue to follow our current models in a
disciplined way. We feel there is just as high a risk from being out of the
market for a period as there is exposing our Portfolio to a Y2K-related market
decline.

Conclusion

Sincerely,

/s/ JOHN MONTGOMERY

John Montgomery

9
<PAGE> 139
BRIDGEWAY FUND, INC.
MICRO-CAP LIMITED PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1999

Industry Company Shares Value
---------------- ------ ------------
<S> <C> <C>
Common Stock - 93.4%
Air Transport - 3.7%
Amtran, Inc. * 14,300 $ 352,138
Frontier Airlines, Inc. * 10,000 161,250
------------
513,388
Building - 2.5%
Building Materials Holding
Corporation * 16,500 189,750
Hovnanian Enterprises, Inc. * 7,900 69,125
The Turner Corporation * 4,800 84,600
------------
343,475
Chemicals - 1.1%
Material Sciences Corporation * 9,800 147,000

Data Processing - Hardware - 0.3%
NeoMagic Corporation * 5,200 43,713

Data Processing - Software & Services - 23.2%
ANSYS, Inc. * 35,200 349,800
Advanced Digital Information
Corporation * 21,300 862,650
Caere Corporation * 26,500 351,125
DA consulting Group, Inc. * 19,000 114,000
Health Management
Systems, Inc. * 19,500 107,250
Merisel, Inc. * 45,600 104,025
MicroTouch Systems, Inc. * 13,000 193,375
SPSS Inc * 8,100 208,069
The Santa Cruz Operation, Inc. 32,500 212,266
Tecnomatix Technologies Ltd. * 8,000 140,000
Wiztec Solutions Ltd. * 24,400 579,500
------------
3,222,060
Electronics/Electric - 18.3%
PSC Inc. * 12,900 126,581
Power Integrations, Inc. * 15,600 1,140,750
Salton, Inc. * 18,000 900,000
The Titan Corporation * 35,000 385,000
------------
2,552,331

Finance - 3.6%
Delta Financial Corporation * 7,500 47,813
ISB Financial Corporation * 3,800 81,700
Pilgram America Capital
Corporation * 19,000 368,125
------------
497,638
Health Care Facilities - 2.5%
Sunquest Information
Systems, Inc. * 22,000 354,750

Home Furnishings - 9.6%
Ladd Furniture Inc. * 26,700 560,700
O'Sullivan Industries
Holdings, Inc. * 28,000 476,000
Winslow Furniture, Inc,* 9,000 302,625
------------
1,339,325
Housewares - 1.2%
Media Arts Group, Inc. * 37,400 163,625

Insurance - 1.3%
Vesta Insurance Group, Inc. * 40,000 185,000

Leisure-Amusement - 2.7%
JAKKS Pacific, Inc. * 4,000 119,250
SCP Pool Corporation * 2,500 64,688
THQ Inc. * 6,500 186,875
------------
370,813
Medical Equipment/Supplies - 1.5%
Empi, Inc. * 8,500 207,188

Retail Stores - 5.5%
Creative Computers, Inc. * 17,000 136,000
The Children's Place Retail
Stores, Inc. * 12,464 504,792
Wilsons The Leather
Experts Inc. * 7,900 129,856
------------
770,648
Services - 4.8%
American Physician
Partners, Inc. * 14,000 100,625
Innotrac Corporation * 24,000 486,000
Kaneb Services, Inc. * 19,000 80,750
------------
667,375
Telecommunications - 0.9%
Comtech Telecommunications
Corporation * 350 3,719
Gilat Communications Ltd. * 8,000 128,000
------------
131,719
Transportation/Freight - 6.1%
Forward Air Corporation * 30,400 855,000

Trucking - 4.6%
Arkansas Best Corporation * 51,700 513,769
USA Truck, Inc. * 14,000 128,188
------------
641,957
------------
Total Common Stock (Identified Cost $10,241,249) $ 13,007,005

Short-term Investments - 6.1%
Money Market Funds - 6.1%
Expedition Money Market Fund 283,645 283,645
Federated Money Market Prime
Obligations Fund 283,645 283,645
SEI Daily Income Trust Prime
Obligations Fund 283,645 283,645
------------
850,935
------------
Total Short-term Investments
(Identified Cost $850,935) $ 850,935
------------

Total Investments - 99.5% $ 13,857,940

Other Assets and Liabilities, net - 0.5% 74,076
------------

Total Net Assets - 100.0% $ 13,932,016
============

</TABLE>

* Non-income producing security as no dividends were paid
during the period from July 1, 1998 to June 30, 1999.

** The aggregate identified cost on a tax basis is $11,097,317.
Gross unrealized appreciation and depreciation were $3,927,923 and
$1,162,167, respectively, or net unrealized appreciation of $2,765,756.

See accompanying notes to financial statements.

<PAGE> 140

BRIDGEWAY FUND, INC. - MICRO-CAP LIMITED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 1999

<TABLE>

<S> <C>
ASSETS:
Investments at value (cost - $11,092,184) $13,857,940
Cash 131,868
Receivable for investments sold 123,392
Receivable from adviser 204
Receivable for interest 2,213
Prepaid expenses 10,396
Deferred organization costs 7,719
-----------
Total assets 14,133,732
-----------
LIABILITIES:
Payable for shares redeemed 109,473
Payable for investments purchased 84,500
Payable for management fee 9
Accrued expenses 7,734
-----------
Total liabilities 201,716
-----------
NET ASSETS (2,182,232 SHARES OUTSTANDING) $13,932,016
===========
Net asset value, offering and redemption price per
share ($13,932,016 /2,182,232) $ 6.38
===========

NET ASSETS REPRESENT:
Paid-in capital $11,167,541
Undistributed net realized loss (1,281)
Net unrealized appreciation of investments 2,765,756
-----------
NET ASSETS $13,932,016
===========
</TABLE>

BRIDGEWAY FUND, INC. - MICRO-CAP LIMITED PORTFOLIO
STATEMENT OF OPERATIONS
For the year ended June 30, 1999
<TABLE>

<S> <C>
INVESTMENT INCOME:
Dividends $ 9,450
Interest 28,217
----------
Total income 37,667
----------
EXPENSES:
Management fees 99,314
Accounting fees 40,754
Audit fees 6,114
Custody 11,520
Amortization of organization costs 1,931
Insurance 958
Legal 2,217
Registration fees 5,510
Directors' fees 1,313
----------
Total expenses 169,631
----------
NET INVESTMENT LOSS (131,964)
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 130,683
Net change in unrealized appreciation 2,765,756
----------
Net realized and unrealized gain 2,896,439
----------

NET INCREASE IN ASSETS RESULTING FROM OPERATIONS $2,764,475
==========
</TABLE>

See accompanying notes to financial statements.

<PAGE> 141

BRIDGEWAY FUND, INC. - MICRO-CAP LIMITED PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS

Year ended June 22, 1998* to
INCREASE (DECREASE) IN NET ASSETS: June 30, 1999 June 30, 1998
OPERATIONS:
<S> <C> <C>
Net investment loss $ (131,964) $ 0
Net realized gain on investments 130,683 0
Net change in unrealized appreciation 2,765,756 0
----------- ----------
Net increase resulting from operations 2,764,475 0
----------- ----------
Distributions to shareholders:
From net investment income 0 0
From realized gains on investments 0 0
----------- ----------
Total distributions to shareholders 0 0
FUND SHARE TRANSACTIONS:
Proceeds from sale of shares 9,742,068 9,079,575
Reinvestment of dividends 0 0
Cost of shares redeemed (7,646,132) (7,970)
----------- ----------
Net increase from Fund share transactions 2,095,936 9,071,605
----------- ----------
Net increase in net assets 4,860,411 9,071,605
NET ASSETS:
Beginning of period 9,071,605 0
----------- ----------
End of period $13,932,016 $9,071,605
=========== ==========

Number of Fund shares:
Sold 1,938,703 1,815,915
Issued on dividends reinvested 0 0
Redeemed (1,570,792) (1,594)
----------- ----------
Net increase 367,911 1,814,321
Outstanding at beginning of period 1,814,321 0
----------- ----------
Outstanding at end of period 2,182,232 1,814,321
=========== ==========
</TABLE>

BRIDGEWAY FUND, INC. - MICRO-CAP LIMITED PORTFOLIO
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the period)

Year ended June 22, 1998* to
June 30, 1999 June 30, 1998
<S> <C> <C>
PER SHARE DATA
Net asset value, beginning of period $ 5.00 $ 5.00
----------- ----------
Income (loss) from investment operations:
Net investment loss (0.06) 0.00
Net realized and unrealized gain 1.44 0.00
----------- ----------
Total from investment operations 1.38 0.00
----------- ----------
Less distributions to shareholders:
Net investment income 0.00 0.00
Net realized gains 0.00 0.00
----------- ----------
Total distributions 0.00 0.00
----------- ----------
Net asset value, end of period $ 6.38 $ 5.00
=========== ==========

TOTAL RETURN [1] 27.6% 0.0%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period $13,932,016 $9,071,605
Ratios to average net assets: [2]
Expenses after waivers and reimbursements 1.54% 0.00%
Expenses before waivers and reimbursements 1.54% 0.00%
Net investment income (loss) after waivers and
reimbursements (1.20%) 0.00%

Portfolio turnover rate [2] 117.0% 0.0%
</TABLE>

[1] Not annualized.
[2] Annualized.
* June 22, 1998 was initial offering.

See accompanying notes to financial statements.

<PAGE> 142

BRIDGEWAY FUND, INC.
MICRO-CAP LIMITED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS

1. Organization:

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

The Fund is organized as a series fund and has 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.

The Micro-Cap Limited Portfolio was offered to the public beginning June
22, 1998 in accordance with the subscription offering. Until July 1, 1998
the portfolio's operations were restricted to accepting subscription
funds. On July 1, 1998 the Portfolio began investing in micro-cap stocks
and commenced other operations. The Portfolio will close 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.

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.

Distributions to Shareholders

<PAGE> 143

BRIDGEWAY FUND, INC.
MICRO-CAP LIMITED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS, Continued

2. Significant Accounting Policies, Continued:

Use of Estimates in Financial Statements

Risks and Uncertainties

The Fund invests in stocks. Such investments are exposed to various
risks, such as interest rate, market and credit. Due to the level of risk
associated with certain investments and the level of uncertainty related
to changes in the value of investments, 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.

12b-1 Plan

Other

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

3. Management Contract:

The Micro-Cap Limited Portfolio pays a flat 0.9% annual management fee,
computed daily and payable monthly, except that while the Portfolio's net
assets range from $27.5 million to $55 million the fee will be $495,000
annually subject to a maximum rate of 1.49% and a maximum expense ratio
of 1.9%.

The fee is adjusted quarterly based upon performance. The performance
adjustment rate varies with the Fund's performance as compared to the
performance of the CRSP Cap-Based Portfolio 9 Index with dividends
reinvested (hereinafter "Index" ) and ranges from -.7% to +.7%. The
performance rate adjustment is calculated at 2.8% 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%.

4. Related Party Transactions:

One director of the Fund, John Montgomery, is an owner and director of
the Adviser. Under the Investment Company Act of 1940 definitions, he is
considered to be "affiliated" and "interested." Compensation of Mr.
Montgomery is borne by the Adviser rather than the Fund. The other
officers 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 all
amounts paid for shareholder accounting are paid to the Adviser and are
included in the Accounting fees expense category of the financial
statements.

5. Custodial Agreement:

<PAGE> 144

BRIDGEWAY FUND, INC.
MICRO-CAP LIMITED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS, Continued

6. Cost, Purchases and Sales of Investment Securities:

Investments have the same cost for tax and financial statement purposes.
Aggregate purchases and sales of investment securities, other than cash
equivalents were $21,460,799 and $11,347,097, respectively for the year
ended June 30, 1999.

<PAGE> 145

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of Bridgeway Fund, Inc.
and Shareholders of the Micro-Cap Limited Portfolio:

In our opinion, the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, and the related statements of operations
and changes in net assets and financial highlights present fairly, in all
material respects, the financial position of the Micro-Cap Limited Portfolio
(one of the portfolios constituting Bridgeway Fund, Inc) at June 30, 1999, the
results of its operations for the year then ended, the changes in its net assets
and financial highlights for the year then ended and for the period from June
22, 1998 (commencement of operations) to June 30, 1998, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at June 30, 1999 by correspondence with the custodian
and broker, provides a reasonable basis for the opinion expressed above.

/s/ PRICEWATERHOUSECOOPERS LLP

Houston, Texas
August 23, 1999

<PAGE> 146

[BRIDGEWAY LOGO]

August 27, 1999

Dear Aggressive Growth Shareholder,

We had a very strong quarter (up 15%) and fiscal year (up 33%). I am
pleased that we are now within a stones's throw of overtaking the
performance of the S&P 500 on a cumulative basis. We have beaten this
performance benchmark for each of the last three quarters. Bridgeway
Aggressive Growth ranks in the top quartile of aggressive growth funds both
over the last year and since inception. This performance has occurred
during a period of large company dominance, not the environment within
which our investment style usually flourishes. Our performance has beaten
that of the Russell 2000 Index of more similarly sized small stocks not
only cumulatively, but also for each of the five fiscal years since
inception.

Fiscal Year 1999: A Brief Review

This fiscal year has been one of the more interesting years to watch the
stocks chosen by my statistical models. We felt the full impact of the
small company bear market last fall with a September quarter decline of
23%. (Some would not agree with me that this was interesting; it certainly
was not pleasant.) However, the Portfolio came roaring back in the December
quarter (up 39%) as our models loaded up on some excellent mid-cap growth
companies, Internet companies, and retail stocks. The March quarter saw our
Internet stocks continue to explode and more than offset the drag of our
small company stocks. At the end of the March quarter, our Internet-related
stocks had a cost basis (initial purchase price) equal to 16% of the
Portfolio, but a market value of 30% of the Portfolio, so we began trimming
them back - and not a moment too soon. The Internet market darlings took
significant hits in the June quarter. Our small stocks finally came to life
during the most recent quarter, more than making up the drag of Internet
stocks, and enabling us to beat our primary market benchmark for the third
consecutive quarter.

Performance Summary

TRANSLATION: Over the last five years, our general concentration of smaller
companies has held back our performance, as smaller companies (as
represented by the Russell 2000 Index) badly underperformed larger ones (as
represented by the S&P 500 Index). However, our Aggressive Growth Portfolio
performance has nearly kept up with the S&P 500 in spite of this fact. We
have beaten the performance of smaller companies by almost 12% per year
since inception.

The graph below presents the quarterly performance of the Aggressive Growth
Portfolio relative to our benchmarks. The portfolio is close to overtaking
the S&P 500 benchmark on a cumulative basis. Only

GROWTH OF $10,000 INVESTED IN VARIOUS FUNDS AND
INDEXES FROM 8/5/94 (INCEPTION) TO 6/30/99

[CHART]

<TABLE>
<CAPTION>
Fund / Index Name Total Value
- - ----------------- -----------
<S> <C>
Bridgeway Aggressive Growth $ 32,345
S&P 500 Index $ 33,146
Lipper Capital Appreciation Funds $ 24,864
Russell 2000 Index $ 20,102
</TABLE>
<PAGE> 147

6% of domestic equity funds have beaten the S&P 500 over the last five
years, a period of dramatic large company dominance. The table below
presents our June quarter, one year, and life-to-date financial results
according to the formula required by the SEC.

<TABLE>
<CAPTION>
June Qtr. 1 Year Life-to-Date
4/1/99 7/1/98 8/5/94 to
to 6/30/99 to 6/30/99 6/30/1999(3)
---------- ---------- -------------
<S> <C> <C> <C>
Aggressive Growth Portfolio 15.0% 33.4% 27.1%
S&P 500 Index (large companies)(1) 7.1% 22.8% 27.7%
Russell 2000 (small companies)(1) 15.6% 1.5% 15.3%
Lipper Capital Appreciation Funds(2) 8.6% 20.0% 20.4%
</TABLE>

(1) The Russell 2000 and S&P 500 are unmanaged indexes of large and
small companies, respectively, with dividends reinvested. (2) The
Lipper Capital Appreciation Funds reflect the aggregate record of more
aggressive domestic growth mutual funds as reported by Lipper
Analytical Services, Inc. (3) Life-to-date returns are annualized;
quarterly returns are not annualized. Past performance does not
guarantee future returns.

Detailed Explanation of Quarterly Performance or "I'm no genius"

TRANSLATION: Some of our Internet stocks were down. Many of our small
stocks and several mid-cap growth stocks more than made up the difference.
Along with our discipline in following the models, our diversification
across sectors, company size, and investment style helped again in the June
quarter.

In the June quarter I reduced our substantial exposure to Internet-related
stocks by about one third. We trimmed our positions in AOL and Yahoo! and
sold our positions in Pegasus Systems and UBID. Nothing was wrong with the
fundamentals of these companies, but their prices had appreciated so far so
fast that they represented too large a percentage of our holdings and
represented too high a risk. This pruning effort was made none too soon as
many Internet stocks fell precipitously in the quarter. Portfolio holdings
AOL, AtHome and UBID declined 25%, 32% and 51%, respectively.

While the declining stocks were concentrated in the Internet sector, five
stocks in differing industries more than offset the decline of our
remaining Internet holdings:

<TABLE>
<CAPTION>
Rank Company Industry % Gain
---- ------- -------- ------
<S> <C> <C> <C>
1 Salton Inc. Electronics/Electric 104.6%
2 The Children's Place Retail Stores 50.3%
3 VISX Inc. Machinery-Medical 47.2%
4 Ansys Inc. Data Processing Software 44.5%
5 Qualcomm Inc. Telecommunications 44.2%
</TABLE>

I'd like to use this list to make the case that I'm a genius stock picker.
But I'm not. I'm just disciplined in following our quantitative models and
certain principles of risk management.

Point number one. I'm no genius: not all the stocks in the Portfolio went
up. Don't forget the three Internet stocks discussed above. Although we
trimmed them, we still owned them. I'm just glad we have certain internal
guidelines for diversification and managing risk, or this quarter wouldn't
have looked so pretty. In addition to the Internet stocks above, the list
of largest annual decliners is reported on page 4. Fortunately, my
stock-picking models don't have to be right all the time to beat the
market; they just have either to be right a majority of the time or
occasionally "hit a home run." In the last quarter and year, VISX got "home
run" status over Salton, because VISX was a core position, while Salton was
a smaller diversifying position. Keep in mind, however, that I'm not trying
to make Aggressive Growth the number one mutual fund in any one quarter or
year (we'll leave that to the sector funds and highly risky leveraged
funds). We are trying to get in the top 5% of fund rankings long term by
beating the market

2
<PAGE> 148

over rolling three-year periods of time. (Rolling three-year period of time
work like this: 1994 through 1997, 1995 through 1998, 1996 through 1999,
etc.) After five fiscal years, we rank at roughly the fourteenth percentile
among domestic equity funds. I hope to continue to climb the ladder with
good, consistent performance.

Point number two. I'm no genius: for example, I can't even really tell you
why Qualcomm went up so much in the June quarter. Earnings have accelerated
recently. Operating cash flow has turned positive. The stock looked rather
highly priced to me at the beginning of the quarter; now it looks very
expensive. (But the model says hold, so I do.) I have never read an analyst
report on Qualcom. (I once tried analyst recommendations as a variable in
my models. It correlated negatively with stock price, so now I ignore them
altogether.) Although I'm trained as an engineer, I can't even explain
completely what Qualcomm's product description means. What are "code
division multiple access fifth-generation single-chipsets and software for
digital, wireless connections" anyway? Maybe we could just call them some
of the guts of a cell-phone. Well, I could resort to various tautologies
(needless repetition of an idea in different words) of Qualcomm's
performance. "Demand for the shares exceeded supply." That sounds good.
Sometimes people think it helps if we can label a phenomenon, even though
we don't understand it. This is especially true when we think other people
think we are supposed to know. When my first daughter was born, my wife had
an emergency Caesarian section after many hours in labor. The official
reason the doctor gave was "failure to progress." I think I knew that.
Besides, we had a beautiful baby; I didn't see why we should call it a
failure. Maybe we should just call Qualcomm's ascent "failure to go down."

Point three. I'm no genius: just ask any of my siblings, children or
employees. Actually, we all respect each other, but I assure you I have
never fooled them. I'm sure I haven't fooled you either.

Detailed Explanation of Fiscal Year performance

TRANSLATION: 1999 was the sixth consecutive year of large company
dominance. This was a handicap for our portfolio, which has focused more on
small than large companies. However, five of our stocks more than doubled,
and one went up seven-fold during the last year. These companies more than
made up for any handicap we had.

As you are probably aware, our Aggressive Growth Portfolio may invest in
companies of any size. However, because our quantitative models choose one
company at a time (this is called a "bottom-up" method of choosing stocks)
and because there are more small companies, our stock-picking methodology
tends to keep us in a greater number of smaller stocks. The following table
presents the number of Aggressive Growth companies in each of ten company
size groupings, along with stock market return data from the Center for
Research in Security Prices (CRSP). It illustrates the breadth of investing
in our Portfolio:

<TABLE>
<CAPTION>
# of
Company Aggressive % of All Returns
Decile Size Growth Cos. Companies 6/98-6/99
------ ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
1 large 8 21% 25.6%
2 large 3 8% 16.5%
3 mid-size 1 3% 11.2%
4 mid-size 1 3% 6.3%
5 mid-size 4 11% 7.9%
6 small 2 5% 5.3%
7 small 5 13% -0.6%
8 small 7 18% 7.3%
9 micro-cap 4 11% 3.5%
10 ultra-small 3 8% -4.2%
-- ---- -----
Total 38 100% 9.6%
</TABLE>

3
<PAGE> 149

The first column presents ten stock groupings according to a size
methodology from CRSP. The second column translates these groupings into
size labels based on data from Morningstar. (Bridgeway refers to the 10th
decile as "ultra-small." Morningstar groups the 9th and 10th deciles
together as micro-cap.) The third and fourth columns show the distribution
of companies in our Aggressive Growth Portfolio. Thus, there were 8 very
large companies in our Portfolio (the 1st decile), which represented 21% of
our Portfolio. The last column presents the total return of all the
companies in that size grouping over the last year. It also indicates 1)
that the vast amount of the S&P 500's return in the last year (22.8%) was
due to the largest companies, and 2) that the entire bottom half (smaller)
of these companies badly underperformed. 3) With 55% of our companies in
small size categories (deciles six through ten), one would have expected
our returns to be something on the order of 9%, the weighted market return
of our stocks. (Actually, one might also want to subtract an allowance for
operating cost and transaction cost.) Our actual return was far better -
33.4% - which highlights the success of our models in the last year. Let's
look at the stocks that contributed the most to our fiscal year return:

<TABLE>
<CAPTION>
Rank Description Industry % Gain
---- ----------- -------- ------
<S> <C> <C> <C>
1 Power Integrations, Inc. Electronics/Electric 701.4%
2 America Online, Inc. Internet 318.6%
3 Children's Place Retail Stores, Retail Stores 312.8%
Inc.
4 Best Buy Company, Inc. Retail Stores 273.7%
5 Pegasus Systems, Inc. Data Processing/Software 233.4%
6 VISX Inc. Machinery-Medical 173.6%
7 The Gap, Inc. Retail Stores 84.5%
8 Winsloew Furniture, Inc. Home Furnishings 74.7%
9 Information Advantage, Inc Data Processing/Software 71.8%
10 EMC Corp. Data Processing/Hardware 66.1%
11 Tellabs, Inc. Telecommunications 62.7%
12 Salton, Inc. Electronics/Electric 58.7%
13 Nokia Corp "A" Telecommunications 57.7%
14 The Charles Schwab Corp. Finance 56.4%
15 Lexmark Int'l Group Electronics/Electric 53.8%
16 Cisco Systems, Inc. Data Processing/Hardware 53.1%
</TABLE>

Our fiscal year performance was not concentrated in any one industry, but
our over-weighting of the retail and technology sectors definitely helped.
At the end of the fiscal year, technology represented 24% of Portfolio net
assets (versus 21% for the S&P 500), and retail represented 19% of net
assets (versus 7% for the S&P 500). Four of the sixteen companies on the
list above were related to the Internet. Our top performing stock for the
year, Power Integrations, makes electronic circuits for converting from DC
to AC power widely used in personal computers, cell phones, and industrial
applications. This largely undiscovered growth company was extremely cheap
when we bought it. Its revenues, earnings and cash flow were growing; it
was gaining market share, had essentially no debt and was building a cash
hoard. A seven-fold increase later, Wall Street definitely caught on. Since
this was not a core position, however, we trimmed it back significantly
before the year end, too soon, perhaps, in retrospect. As wonderful as the
top performers list is, obviously not everything went up during the year.
The declining list is awful, but it is also much shorter.

<TABLE>
<CAPTION>
Rank Description Industry % Decline
---- ----------- -------- ---------
<S> <C> <C> <C>
1 American Eco. Corp. Pollution Control -69.7%
2 AHT Corp. Services -68.5%
3 Varco International, Inc. Oil & Gas -65.3%
4 Denamerica Corp. Food Serving -65.2%
</TABLE>

4
<PAGE> 150

<TABLE>
<S> <C> <C> <C>
5 Condor Technology Data Processing/Software -64.5%
6 Modis Professional Services Services -61.9%
7 Safeskin Corporation Medical Equipment/Supplies -51.2%
8 Sun Healthcare Medical Equipment/Supplies -50.8%
</TABLE>

These are the stocks I'd really rather not think about. The companies
ranked 1, 2, 4, 5 and 8 are examples of bad things that can happen to very
small companies. Small-cap value companies as a group did very poorly in
the last year and were certainly a drag on our performance. Varco slid
along with dramatically declining oil prices. Safeskin, a manufacturer of
medical latex gloves, saw its fortunes reverse and its stock price cut in
two. After we sold it, it got cut in two again. All of these were smaller
diversifying positions, but not so with Modis Professional. This was a core
position that cost us about 5% on our annual performance. I hope and plan
to see a core holding affect us with this magnitude only about every third
year.

Top Ten Holdings

I invest more money in a smaller number of companies than most other
portfolio managers do (a style called "concentration" or "focus"), but work
very hard on overall diversification, that is, not loading up too much on
any one industry (25% is the maximum) or region of the country. All
together, the ten stocks below comprise half of our Portfolio assets. No
more than two are in the same industry. VISX came to represent over 10% of
the Portfolio primarily by appreciation. At the end of the fiscal year, the
Portfolio held 38 stocks, which are listed in the attached financial
statements. Here are the top ten:

<TABLE>
<CAPTION>
Percent of
Rank Description Industry Net Assets
---- ----------- -------- ----------
<S> <C> <C> <C>
1 VISX Inc. Machinery 10.5%
2 Best Buy Company, Inc. Retail Stores 5.7%
3 Children's Place Retail Stores, Retail Stores 5.4%
Inc.
4 America Online, Inc. Internet 5.3%
5 Arkansas Best Group Trucking 4.6%
6 The Charles Schwab Corp. Finance 4.1%
7 Winsloew Furniture, Inc. Home Furnishings 4.0%
8 Qualcomm Inc. Telecommunications 4.0%
9 Amtran, Inc. Air Transport 3.7%
10 Yahoo! Inc. Internet 3.6%
----
Total 50.9%
</TABLE>

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,
June 30, 1999; security positions can and do change thereafter. The asset
allocation information provided near the end of this letter is for
disclosure purposes only and is not meant as investment advice.

Bridgeway Fund Turns 5!

On August 5 we celebrated Bridgeway Fund's fifth birthday. You will begin
to see Bridgeway listed in five-year performance tables at the end of this
month. Since the average tenure of a mutual fund portfolio manager is three
and a half years, I'm starting to feel like an old timer.

5
<PAGE> 151

The Worst Thing That Happened in Fiscal Year 1999

TRANSLATION: This is the section in which I annually reflect on the worst
thing that happened at Bridgeway. The worst thing in 1999 was my holding on
to some beaten-up ultra-small stocks too long. Although several Bridgeway
Portfolios felt the effects, it cost our Ultra-Small Company Portfolio
shareholders on the order of seven and a half percentage points in the
middle of the worst ultra-small downturn since 1974. It cost my personal
retirement money about five percentage points. A steep market correction is
not the time to make such mistakes. Although I believe that in the
long-term there is a strong possibility that ultra-small stocks will large
ones, sifting out the under-performing ones is essential.

It's a Bridgeway tradition to highlight in each annual report the worst
thing that happened at Bridgeway in the course of the last year. We try to
create an atmosphere within which all Bridgeway employees, including
myself, can be open about our mistakes. We want to learn everything we can
from them, and it's impossible to do so if they are not acknowledged and in
open view. I subscribe to the view that mistakes are the "jewels" which
allow us to learn and grow. When I make mistakes, I'm committed to learning
from them and not repeating them. As a shareholder of the Fund, you are an
owner, my boss, and I want you to know, too.

Last year, Fiscal Year 1998, we had a tie for first place: failure to
launch a web site and a small pricing error. I am pleased to report that we
did launch our web site in 1999 (www.bridgewayfund.com) and that we have
not repeated the pricing error. To put the latter mistake in perspective,
most funds make pricing errors sooner or later, but we shouldn't have made
that one. In line with frequent industry practice, the Adviser "made the
Portfolio whole," reimbursing the cost of the mistake. In 1999 we have been
working hard to upgrade our financial controls and compliance standards. I
believe we now have some of the most stringent pricing controls in the
industry.

The worst mistake in Fiscal Year 1999 was in the ultra-small holdings in
several of our Portfolios, particularly the Ultra-Small Company Portfolio.
This Portfolio had its first negative fiscal year performance in its
history, down 14.5%. A portion of this is beyond our control; ultra-small
stocks experienced the worst downturn since 1974 during the last year. They
recovered partially, and the asset class was down 4.2% for the year ended
June 30. Value stocks did much more poorly than growth stocks.
Nevertheless, for the first time in four years we underperformed our asset
class benchmark in an asset class that should be the easiest to beat. We
underperformed our micro-cap value-oriented competition by seven and a half
percentage points. The mistake I made was holding on to beaten-up stocks
too long after their fundamentals had started to deteriorate significantly.
I should have learned this lesson from previous downturns, even if they
were not as severe as last year.

How Can We Do It Better? - Disclosure of Manager Pay and Fund Ownership

In the discussion below, the "Fund" includes all six portfolios of
Bridgeway Fund. The "Adviser," is Bridgeway Capital Management, Inc., the
firm that employs Bridgeway staff and charges the Fund a fee for investment
advisory services.

About a year ago, various journalists criticized the mutual fund industry
for lack of disclosure of manager pay and fund ownership. Public companies
are required to disclose stock ownership and executive pay, so why aren't
mutual funds? The following are extracts from some of the articles:

6
<PAGE> 152

. . . In fact, fund shareholders are often left in the dark about
what some consider to be the most important disclosure question of
all: Does the fund manager invest in the fund that he or she manages?
Whether your fund manager "eats his own cooking" is a provocative
question for fund companies. . . . Fund managers demand similar
shareholder information from the major executives of companies they
look to invest in. So why shouldn't fund investors be given the same
opportunity?

Wall Street Journal, 3/18/98

[At a recent mutual fund industry conference] . . . one person asked
why fund companies are so reluctant to disclose manager's ownership
interests in their own funds. . . . To defend the industry, [a fund
executive] erected the usual . . . straw man. He said that it would
be unfair to require a 35-year-old muni-bond manager to put a lot of
his personal resources into an obviously inappropriate investment for
someone that age. A lot of fund companies must have 35-year-old
muni-bond managers, because that seems to be the 100th time I've
heard that defense. This excuse doesn't hold water. Most investors
wouldn't expect a young manager to put a lot of his or her own money
into a muni fund. And at any rate, the fund companies could explain
away this situation in a brief paragraph in each shareholder report.

Scott Cooley, Morningstar.net, 5/21/98

And recently a somewhat dissenting view:

Yes, it would be nice if you could know how your fund manager's
performance is being measured--whether on the fund's asset growth,
pure returns, or risk-adjusted returns, for example--so you, as a
shareholder-owner, would know if the manager's interests are aligned
with or in conflict with your own. But worrying about how much that
manager makes simply isn't worth the effort.

Gregg Wolper, Morningstar.net, 5/21/98

It's probably not worth the effort because it's also not possible. Mutual
funds companies are required to disclose the total fund ownership of all
officers and directors as a group. Executive salaries of publicly traded
investment advisory firms are available, but typically they don't include
portfolio managers' salaries. By now, you probably see where I'm headed.

Bridgeway is not afraid to break new ground in the industry. We were the
first fund company to provide shareholders with personalized performance
numbers. We were the first to close a portfolio at what is a laughably low
level by industry standards because we felt it was in shareholders' best
interests. We have walked away from legal brokerage commission structures
(soft dollar commissions) which would have taken money right out of
shareholders' pockets and put it into the Adviser's. We are not afraid to
prohibit Bridgeway portfolio managers from investing in a security which a
Bridgeway portfolio might also own. (We were not the first, but we are in a
tiny minority.) Thus, Bridgeway Fund is my only outlet for domestic stock
market investing.

I can think of only two reasons not to disclose my compensation and
investing status. First, it will eat up another two or three pages of this
paper to disclose and explain. Second, I was raised to believe one does not
talk publicly about one's salary. (At least I think I was. We never talked
openly about salaries and we never talked about not talking about salaries.
So I may be breaking a family dinner table rule here; I'm sure my family
will let me know; several are also shareholders.)

7
<PAGE> 153

Total compensation in the table above includes SEP IRA contributions of
$2,391, shareholder distributions of $8,200 and loans of $36,625. These
figures are from the Adviser's unaudited financial statements.

I want to answer some potential questions about the table and articles
above.

Does the Fund pay the Portfolio Managers' compensation?

No, but there is a financial relationship. Bridgeway Fund pays an
investment advisory fee to the Adviser, which in turn helps pay all the
expenses of the Adviser, including my salary. The Adviser may also make
dividend distributions to all Adviser shareholders, or loans to any
individual.

How is the Portfolio Manager's compensation tied to Bridgeway Fund's
performance?

My compensation is tied to portfolio performance in two ways. First, the
advisory fee, which the Aggressive Growth Portfolio pays to the Adviser, is
a function of Portfolio performance. Specifically, the management fee
varies from 0.2% of net assets to 1.6% depending on our trailing five-year
performance relative to the S&P 500. (To put this in perspective, only 6%
of domestic equity funds outperformed this index in the most recent five
years. If these funds adopted our structure, their average fee would be
only 0.3%, significantly less than the actual.) Assuming recent net assets
of $10 million, the Aggressive Growth annual management fee can be as low
as $20,000 or as high as $160,000. Financially, I am very focused on our
performance. A performance-based management fee greatly changes how the
Adviser thinks about the balance between performance and asset growth. I
believe most advisers are more concerned with asset growth than
performance. Since asset growth is an enemy of fund performance in an
actively managed fund, I have a strong incentive not to let our fund grow
past the point of my managing it well.

The second and more direct way that my compensation is tied to my
performance is through my salary. Salaries for all full-time Bridgeway
employees, including myself, have a component tied to profitability of the
Adviser and a component tied to personal performance. The profitability of
the Adviser is a function of Portfolio performance through the
performance-based fee. (You can imagine that the Bridgeway staff is quite
interested in how well I do my job - besides the fact that each and every
one of them is also a shareholder in one or more Bridgeway portfolios.) My
personal performance is a function of specific goals, which are integrity
(10%), investment performance (50%), efficiency (10%), service (20%), and
asset growth (10%). The investment performance of our Portfolios thus
comprises half of the evaluation score that determines my salary.

There is a lot of variability in your compensation from year to year. Why
is this?

In the first years of Bridgeway, before the Adviser was making a profit for
itself, I contributed capital to help cover expenses. There was no reason
to draw a salary. I began drawing a salary as our cash flow allowed. Last
year I kept my salary low because 1) the Adviser profits were lower than
anticipated [we endured a twenty-year "small-stock storm,"] and 2) I wanted
to meet federal requirements to roll my IRA into a Roth IRA.

8
<PAGE> 154

Recent articles indicate that the median mutual fund manager total cash
compensation is $274,500. Couldn't you make more working at another fund
company?

Yes, currently that is true, but I can't imagine having nearly as much fun,
joy or input. There are several reasons my salary is lower. First,
Bridgeway's asset base is much smaller than the average fund. Second, after
our expense ratio, we still trail the S&P 500 slightly, so our fees and my
salary are commensurately lower. Third, by Bridgeway policy, no employee's
compensation can be more than seven times that of the lowest paid employee.
This isn't a constraining factor yet, but it will be before I reach the
industry average. This policy is important to our company's culture and
business strategy. The ratio of the highest to lowest paid employees among
the largest U.S. companies has grown from 44 to 1 in 1965 to 326 to 1 in
1997. And while I'm not proposing that 7 to 1 should be a standard across
corporate America, I do think executive salaries have gotten out of hand.

If Bridgeway profits take off, won't you just be taking big distributions,
making your salary number irrelevant?

Some day this could be the case. We are a for-profit corporation; I am not
the only shareholder, and I did make a significant investment to found
Bridgeway. However, let me fill you in on some of Bridgeway's unusual
distribution plans. Part of Bridgeway Capital Management's mission
statement is to contribute just over half of its own profits to charitable
and non-profit organizations. Eventually I do intend to recover the capital
contributions I made to Bridgeway. Before this is complete, we will be
donating at least 10% of annual profits to charities; afterward, just over
half. The other portion of our profits is available for working capital and
for shareholder distributions. I have committed to contribute 20% of my
Bridgeway Capital Management shares to an employee stock ownership plan. I
have a life goal of giving away $100 million annually when I retire. If I
succeed at this, I will have helped make many Fund shareholders quite happy
along the way. (Remember our performance-based fees; we only do well when
our Fund shareholders do well.) As you may be able to tell, I take great
joy in both receiving and giving. From time to time I encourage our
shareholders in the area of generosity, which offends a few, but "lights
up" others. Some shareholders don't care what we do with our money as long
as the Fund is making money for them.

You can only invest in the stock market through Bridgeway Fund. How much of
each Portfolio do you own and why?

My target asset allocation is 62% Ultra-Small Company Portfolio, 5%
Micro-Cap Limited, 25% Aggressive Growth, and 8% Social Responsibility. My
actual valuation varies with portfolio fluctuations. At the end of June, my
IRA account, my wife's IRA, plus my interest in a small investment by
Bridgeway Capital Management was worth $116,000. I expect to be making
additional investments in Bridgeway Fund as my family college tuition
expense declines and I pay down my debt.

There are three reasons for my rather "aggressive" allocation between the
Bridgeway portfolios. First, I have a very high tolerance for short-term
risk with money I invest for the long-term. (I don't put money that I might
need to spend in the next couple of years in the stock market, I put it in
a short-term bond fund or the highest yielding money market fund I can
find.) Almost all of my stock market money is my long-term retirement
money. I don't expect to retire in the next 20 years. I do expect the stock
market to go through several major corrections before then, but I have
overall faith in the U.S. economy and would expect the market to recover,
given enough time. So I generally ignore short-term fluctuations and don't
lose any sleep when my investments are down 30-40% from their peak. It's
the nature of the stock market to "correct" itself.

Second, since I am disciplined in ignoring short-term fluctuations, I seek
out asset classes and diversifying stock picking models with higher
short-term volatility coupled with historically higher average annual
return. I avoid investments that use leverage to gain additional stock
market exposure. This is how you really get in trouble in a major
correction. (However, Aggressive Growth can use leverage while seeking an
overall market risk roughly equal to the market over longer time periods.)
Over the last fifteen years my strategy has worked very well. It would not
work as well in an extended

9
<PAGE> 155

recession, but I don't anticipate recessions that last twenty years, or
even ten. Although, of course, theoretically they could.

Third, since most of my investments are through my IRA, it is easy to
ignore the effect of taxes. Aggressive Growth is not one of our more tax
efficient portfolios, although as portfolio manager I pay attention to tax
consequences when I think it will not adversely affect total returns. I do,
for example, use a tax lot accounting method to maximize short-term losses
and long-term grains. In the future, when I invest in Bridgeway Fund
through a taxable account, I still plan primarily to use our actively
managed portfolios, but I may hedge some by also investing a bit in our two
extremely tax efficient portfolios, Ultra-Small Index and Ultra-Large 35
Index.

The following are factors that have affected my allocation between
portfolios. The ultra-small asset class has the highest historical average
annual return of any asset class I know. Micro-Cap Limited has the
advantage of being a more "focused" and very nimble portfolio. Aggressive
Growth relies primarily on models I have used for the longest period of
time personally, since 1985. Social Responsibility focuses on social issues
I am interested in, as well as financial performance.

Total Returns of Other Bridgeway Portfolios

Some shareholders have requested that we periodically present the
performance of all Bridgeway portfolios. Numbers in bold indicate the top
performing portfolio in a given period. The performance figures help
illustrate the advantage of diversification, even across some of our
portfolios. This data is presented in the more common format of calendar,
rather than fiscal years.

<TABLE>
<CAPTION>
8/5/94 to 1/1/99 to Avg. Ann. Avg. Ann. Avg. Ann.
12/31/94 1995 1996 1997 1998 6/30/99 Since 8/94 Since 7/97 Since 6/98
--------- ---- ---- ---- ---- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aggressive Growth 8.8 27.1 32.2 18.3 19.3 25.5 27.1 23.4 33.4
Ultra-Small Company -2.8 39.8 29.7 38.0 -13.1 1.4 16.9 -5.1 -14.5
Social Responsibility 1.5 30.3 16.2 27.5 37.8 11.3 25.2 28.7 26.2
Ultra-Small Index -1.8 1.4 -0.4 -12.8
Ultra-Large 35 Index 39.1 14.1 27.4 30.3
Micro-Cap Limited 7.6* 18.6 27.6

*Includes the period 7/1/99 - 12/31/99 only

Bridgeway Formalizes Expense Limitations

At the August 18 meeting of the Fund's Board of Directors, the directors
voted unanimously to amend the management contract with the Adviser
(Bridgeway Capital Management) to include the 2.0% expense limitation in
the body of the contract. The expense reimbursement was previously an
"undertaking" of the Adviser outside of the management contract. Its
inclusion in the contract means that the expense limitation cannot be
increased in the future without a vote of shareholders. Since it was never
our intention to raise the expense limitation, both the Fund and the
Adviser were happy to add this language to the contract. This change will
be effective in the contract and incorporated in our new prospectus dated
October 31, 1999.

10
<PAGE> 156

Year 2000 Preparedness

TRANSLATION: Operationally, we consider ourselves ready. Investment-wise,
we're ignoring it. This is a conscious, reasonable, and intentional
decision on our part.

Bridgeway believes that its internal systems are ready for potential
software and hardware issues which could arise from the year 2000.
Operationally, there is still some risk that the phone company, electric
utility, or other supplier will not be ready. However, we have taken
reasonable steps to ensure our vendors' compliance and we have made some
contingency plans. We are taking it seriously.

On the investment side, Bridgeway has taken no actions and plans to take no
actions with respect to potential stock market movements around the end of
the current year. For our index portfolios, we will passively hold the
companies (or in the case of Ultra-Small Index, a sample of the companies)
which comprise the index, regardless of their degree of preparedness. In
the case of our actively managed funds, we have no model variables for
"Y2K," and plan to continue to follow our current models in a disciplined
way. We feel there is just as high a risk from being out of the market for
a period as there is exposing our Portfolio to a Y2K-related market
decline.

Conclusion

As always, I appreciate your feedback. We take it seriously and have made
continuing improvements because people have taken the time to write or call
us. The table above is just one example. Please keep your ideas coming.

Sincerely,

/s/ JOHN MONTGOMERY

John Montgomery

11
<PAGE> 157

BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1999

<TABLE>
<CAPTION>
Industry Company Shares Value
-------- ------- ------ -----
<S> <C> <C>
Common Stock - 95.2%
Air Transport - 5.4%
Amtran, Inc. * 14,250 $ 350,906
Frontier Airlines, Inc. * 10,000 161,250
-----------
512,156
Automobiles - 3.5%
Ford Motor Company 5,800 332,050

Data Processing - Computer Systems - 2.3%
Siebel Systems, Inc. * 3,300 218,831

Data Processing - Software & Services - 16.1%
ANSYS, Inc. * 27,300 271,294
ARDENT Software, Inc. * 100 2,125
America Online, Inc. * 4,600 508,300
At Home Corporation * 2,000 107,875
CNET, Inc. * 2,600 149,825
Condor Technology
Solutions, Inc.* 14,700 68,906
Yahoo! Inc. * 1,970 339,333
uBid, Inc. * 2,708 86,656
-----------
1,534,314
Drugs-Generic and OTC - 2.8%
Chattem, Inc. * 4,700 149,519
Medco Research, Inc. * 4,500 118,125
-----------
267,644

Electronics/Electric - 5.7%
Instron Corporation 5,000 101,250
InterVoice, Inc. * 12,900 186,244
Power Integrations, Inc. * 1,000 73,125
Salton, Inc. * 3,660 183,000
-----------
543,619
Finance - 6.7%
ADVANTA Corporation 3,600 65,025
Pilgram America Capital
Corporation * 9,300 180,188
The Charles Schwab Corporation 3,565 388,585
-----------
633,798

Home Furnishings - 4.0%
Winsloew Furniture, Inc. * 11,400 383,325

Jewelry, Silverware, Watches - 0.9%
Jan Bell Marketing, Inc. * 25,500 89,250

Machinery - 10.5%
VISX, Inc. * 12,600 997,763

Medical Equipment/Supplies - 1.6%
ICU Medical, Inc. * 8,700 153,881

Retail Stores - 18.5%
American Eagle Outfitters, Inc. * 5,600 254,800
Ann Taylor Stores Corporation * 6,000 270,000
Best Buy Company, Inc. * 8,000 540,000
Creative Computers, Inc. * 6,125 49,000
The Children's Place Retail Stores, 12,636 511,758
The Gap, Inc. 2,700 136,013
-----------
1,761,571

Services - 1.8%
Innotrac Corporation * 8,500 $ 172,125

Shipping/Shipbuilding - 0.0%
Kirby Corporation * 10 212

Telecommunications - 9.0%
Dycom Industries, Inc. * 5,200 291,200
QUALCOMM Inc. * 2,650 380,275
Tellabs, Inc. * 2,700 182,419
-----------
853,894
Trucking - 6.4%
Arkansas Best Corporation * 44,000 437,250
Wabash National Corporation * 8,600 166,625
-----------
603,875
-----------

Total Common Stock (Identified Cost $6,424,710) $ 9,058,308

Options - 0.2%
Russell 2000 Index - 0.1%
July, 1999 Calls @ $455 * 12 9,900
S&P 100 Index - 0.1%
January, 2000 Puts @ 620 * 5 10,563
-----------
20,463

===========

Total Options (Identified Cost $25,956) $ 20,463

Short-term Investments - 2.0%
Money Market Funds - 2.0%

Expedition Money Market Fund 63,101 63,101
Federated Money Market Prime
Obligations Fund 61,245 61,245
SEI Daily Income Trust Prime
Obligations Fund 61,245 61,245
-----------
185,591

===========

Total Short-term Investments
(Identified Cost $185,591) $ 185,591

-----------

Total Investments - 97.4% $ 9,264,362

Other Assets and Liabilities, net - 2.6% 245,261

===========

Total Net Assets - 100.0% $ 9,509,623
===========

* Non-income producing security as no dividends were paid
during the period from July 1, 1998 to June 30, 1999.

** The aggregate identified cost on a tax basis is $6,636,257. Gross
unrealized appreciation and depreciation were $2,823,681 and
$195,576, respectively, or net unrealized appreciation of $2,628,105.

See accompanying notes to financial statements.
</TABLE>

<PAGE> 158

BRIDGEWAY FUND, INC. - AGGRESSIVE GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 1999

<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (cost - $6,636,257) $9,264,362
Cash 90,793
Receivable from adviser 177
Receivable for securities sold 167,186
Receivable for interest 1,382
Prepaid expenses 5,000
----------
Total assets 9,528,900
----------

LIABILITIES:
Payable for shares redeemed 574
Payable for investments purchased 9,927
Payable for management fee 52
Accrued expenses 8,724
----------
Total liabilities 19,277
----------
NET ASSETS ( 365,420 SHARES OUTSTANDING) $9,509,623
==========
Net asset value, offering and redemption price per share ($9,509,623 / 365,420) $26.02
==========

NET ASSETS REPRESENT:
Paid-in capital $6,151,083
Undistributed net realized gain 730,435
Net unrealized appreciation of investments 2,628,105
----------
NET ASSETS $9,509,623
==========
</TABLE>

BRIDGEWAY FUND, INC. - AGGRESSIVE GROWTH PORTFOLIO
STATEMENT OF OPERATIONS
For the year ended June 30, 1999

<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends $10,766
Interest 17,124
----------
Total income 27,890

EXPENSES:
Management fees 14,577
Accounting fees 36,583
Audit fees 5,201
Custody 4,159
Amortization of organization costs 4,614
Insurance 1,026
Legal 6
Registration fees 7,592
Directors' fees 1,379
Miscellaneous 307
----------
Total expenses 75,444
----------

NET INVESTMENT LOSS (47,554)
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 839,698
Net realized loss on options (61,855)
Net change in unrealized appreciation 1,914,535
----------
Net realized and unrealized gain 2,692,378
----------

NET INCREASE IN ASSETS RESULTING FROM OPERATIONS $2,644,824
==========
</TABLE>

See accompanying notes to financial statements.

<PAGE> 159

BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
Year ended Year ended
INCREASE (DECREASE) IN NET ASSETS: June 30, 1999 June 30, 1998
<S> <C> <C>
OPERATIONS:
Net investment loss $ (47,554) $ (80,860)
Net realized gain on investments 839,698 584,511
Net realized loss on options (61,855) (27,950)
Net change in unrealized appreciation 1,914,535 213,313
- - -------------------------------------------------------------------------------------------------
Net increase resulting from operations 2,644,824 689,014
- - -------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income 0 0
From realized gains on investments (196,285) (455,880)
- - -------------------------------------------------------------------------------------------------
Total distributions to shareholders (196,285) (455,880)

FUND SHARE TRANSACTIONS:
Proceeds from sale of shares 6,114,447 6,076,613
Reinvestment of dividends 195,660 451,952
Cost of shares redeemed (6,100,843) (3,330,369)
- - -------------------------------------------------------------------------------------------------
Net increase from Fund share transactions 209,264 3,198,196
- - -------------------------------------------------------------------------------------------------
Net increase in net assets 2,657,803 3,431,330
NET ASSETS:
Beginning of period 6,851,820 3,420,490
- - -------------------------------------------------------------------------------------------------
End of period $9,509,623 $6,851,820
- - -------------------------------------------------------------------------------------------------

Number of Fund shares:
Sold 313,043 293,674
Issued on dividends reinvested 13,635 25,433
Redeemed (298,404) (163,996)
- - -------------------------------------------------------------------------------------------------
Net increase 28,274 155,111
Outstanding at beginning of period 337,146 182,035
- - -------------------------------------------------------------------------------------------------
Outstanding at end of period 365,420 337,146
- - -------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to financial statements.

<PAGE> 160

BRIDGEWAY FUND, INC. - AGGRESSIVE GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the period)

<TABLE>
<CAPTION>
Year ended Year ended Year ended
June 30, 1999 June 30, 1998 June 30, 1997
<S> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period $20.32 $18.79 $16.66
- - ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.13) (0.30) (0.24)
Net realized and unrealized gain 6.43 3.46 3.43
- - ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 6.30 3.16 3.19
- - ------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders:
Net investment income 0.00 0.00 0.00
Net realized gains (0.60) (1.63) (1.06)
- - ------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.60) (1.63) (1.06)
- - ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $26.02 $20.32 $18.79
==============================================================================================================================

TOTAL RETURN [1] 33.4% 18.1% 19.9%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period $9,509,623 $6,851,820 $3,420,490
Ratios to average net assets: [2]
Expenses after waivers and reimbursements 1.04% 2.00% 2.00%
Expenses before waivers and reimbursements 1.04% 2.00% 2.77%
Net investment loss after waivers and reimbursements (0.65%) (1.50%) (1.40%)

Portfolio turnover rate [2] 211.1% 132.3% 138.9%

<CAPTION>
Year ended 8/5/94* to
June 30, 1996 June 30, 1995
PER SHARE DATA
Net asset value, beginning of period $11.71 $9.89
- - --------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.18) (0.02)
Net realized and unrealized gain 5.22 1.84
- - --------------------------------------------------------------------------------------------------------
Total from investment operations 5.04 1.82
- - --------------------------------------------------------------------------------------------------------
Less distributions to shareholders:
Net investment income 0.00 0.00
Net realized gains (0.09) 0.00
- - --------------------------------------------------------------------------------------------------------
Total distributions (0.09) 0.00
- - --------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.66 $11.71
========================================================================================================

TOTAL RETURN [1] 43.3% 19.5%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period $1,502,485 $276,272
Ratios to average net assets: [2]
Expenses after waivers and reimbursements 1.97% 1.86%
Expenses before waivers and reimbursements 5.73% 16.15%
Net investment loss after waivers and reimbursements (1.26%) (0.30%)

Portfolio turnover rate [2] 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.

<PAGE> 161

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

1. Organization:

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

The Fund is organized as a series fund and has 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, including options, 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.

Distributions to Shareholders

Use of Estimates in Financial Statements

Risks and Uncertainties

The Fund provides for various investment options including stocks and
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.)

<PAGE> 162

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

2. Significant Accounting Policies, Continued:

12b-1 Plan

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>
Options outstanding June 30, 1998 206 $ 94,431 0 $ 0
Options purchased 82 82,748 36 49,450
Options expired (106) (55,174) 0 0
Options exercised (14) (6,857) (6) (3,175)
Options closed (156) (105,221) (25) (30,246)
---------- ------------- ---------- ------------
Options outstanding June 30, 1999 12 $ 9,927 5 $ 16,029
========== ============= ========== ============

Market value June 30, 1999 $ 9,900 $ 10,563
============= ============
</TABLE>

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 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%.

<PAGE> 163

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

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:

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 $14,777,819 and $15,217,829, respectively, for the year
ended June 30, 1999.

8. Federal Income Taxes:

During the year ended June 30, 1999, the Fund paid a dividend from net
investment income of $0.1005 and a long-term capital gain distribution of
$0.4962 per share to shareholders of record. None of the dividends paid
by the fund are eligible for the dividends received deduction of
corporate shareholders.

<TABLE>
<S> <C>
Paid-in capital $ (676)
Undistributed net investment income 47,554
Undistributed net realized gain (46,878)
</TABLE>

<PAGE> 164

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of Bridgeway Fund, Inc.
and Shareholders of the Aggressive Growth Portfolio:

In our opinion, the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, and the related statements of operations
and changes in net assets and financial highlights present fairly, in all
material respects, the financial position of the Aggressive Growth Portfolio
(one of the portfolios constituting Bridgeway Fund, Inc) at June 30, 1999, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and the financial highlights
for each of the four years in the period then ended and for the period from
August 5, 1994 (commencement of operations) to June 30, 1995, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at June 30, 1999 by correspondence with the custodian
and broker, provides a reasonable basis for the opinion expressed above.

/s/ PRICEWATERHOUSECOOPERS LLP

Houston, Texas
August 23, 1999

<PAGE> 165
[BRIDGEWAY LETTERHEAD]

August 27, 1999

Dear Fellow Social Responsibility Shareholder,

Our Portfolio's financial performance for our fifth fiscal year was
excellent. Total return for the year ended June 30, 1999 was three and a
half percent above the S&P 500 Index, and more than ten percentage points
above the average growth and income fund. For the second fiscal year in a
row, we beat the S&P 500. Our Portfolio ranked eighth of 50 socially
responsible equity funds for one-year performance and thirteenth of 30
funds for three-year performance, according to Morningstar.

Performance Summary

The following table presents the SEC standardized performance for the June
quarter, one year, and life-to-date. The graph presents a
quarter-by-quarter view.

<TABLE>
<CAPTION>
June Qtr. 1 Year Life-to-Date
4/1/99 7/1/98 to 8/5/94 to
to 6/30/99 6/30/99 6/30/99(3)
---------- --------- ------------
<S> <C> <C> <C>
Social Responsibility Portfolio 4.6% 26.2% 25.2%
S&P 500 (large stocks)(1) 7.1% 22.8% 27.7%
Lipper Growth and Income Funds(2) 8.8% 15.3% 21.3%
</TABLE>

(1) The S&P 500 is an unmanaged index of large stocks, with dividends
reinvested. (2) The Lipper Growth and Income Funds reflect the aggregate
record of domestic growth and income mutual funds as reported by Lipper
Analytical Services, Inc. (3) Life-to-date returns are annualized;
quarterly returns are not annualized. Past performance does not guarantee
future returns.

GROWTH OF $10,000 INVESTED IN VARIOUS FUNDS AND INDEXES
FROM (INCEPTION) 8/5/94 TO 6/30/99

[CHART]

<TABLE>
<CAPTION>
-------------------------------------------------
Fund/Index Name Total Value
-------------------------------------------------

<S> <C>
Bridgeway Social $30,055
Responsibility Portfolio

S&P 500 Index $33,146

Lipper Growth & Income $25,790
Funds
-------------------------------------------------
</TABLE>

<PAGE> 166

Explanation of Financial Performance

TRANSLATION: Our strong exposure to the retail sector (18.5% of net
assets) and health sector (16.8%) worked in our favor this year.
Relatively low exposure to energy stocks and no exposure to tobacco also
helped our portfolio since these sectors of the economy performed poorly.
Other contributing factors were a focus on larger stocks and to a lesser
degree on growth stocks.

The following table presents stocks that gained at least 50% during the
fiscal year:

<TABLE>
<CAPTION>
Rank Company Industry % Change
- - ---- ------- -------- --------
<S> <C> <C> <C>
1 Unify Corp. Data Processing-Software 414%
2 The Gap, Inc. Retail Stores 84%
3 Vodafone Group PLC Telecommunications 78%
4 Railamerica Inc. Railroads 74%
5 Microsoft Corp. Data Processing-Software 66%
6 VISX Inc. Machinery (medical) 58%
7 Home Depot, Inc. Retail Stores 55%
</TABLE>

Software firms and retail stores each took two of the top seven spots in
our ranking of companies' financial performance. Interestingly, the
software firms represented both ends of the size spectrum to include the
largest U.S. company and one of the smallest. You will recognize
Microsoft. Unify develops and sells software for companies offering
electronic commerce over the Internet. Although the firm more than
quadrupled during the year, it was not your classic Internet initial
public offering with no earnings and a hope of making it big. The
company's stock price was only $13.50 at fiscal year end, but its earnings
per share are more than AOL. AOL's price/share was more than eight times
greater - $110 per share. You can guess which company I think has more
price appreciation potential.

Of course not all our stocks went up. Thankfully, however, we only had one
that declined more than 50%. Safeskin, a manufacturer of gloves for
medical use, was one of our better-performing stocks in 1997 and 1998.
Unfortunately, the company stumbled in its international expansion effort.
Its fortunes reversed, and its stock price was cut in two. I'm glad we
sold when we did; the price was cut in two again after we sold it.

Largest Positions

Our largest ten portfolio positions on June 30, 1999 continue to reflect
retail, computers and finance as our leading sectors:

<TABLE>
<CAPTION>
Company Industry % Net Assets
- - ------- -------- ------------
<S> <C> <C>
International Business Machines Data Processing-Hardware 6.2%
Unify Corp. Data Processing-Software 5.7%
The Gap, Inc. Retail Stores 5.1%
Starbucks Corp. Retail Stores 4.5%
Xerox, Inc. Electronics/Electric 4.5%
VISX, Inc. Machinery 4.5%
Chase Manhattan Bank Finance 4.3%
Microsoft Corp Data Processing-Software 4.2%
Federal National Mtg. Assn. Finance 4.0%
Home Depot, Inc Retail Stores 3.8%
----
Total 46.8%
</TABLE>

The enclosed annual financial statement contains a complete listing of all
Portfolio securities by industry.

2
<PAGE> 167

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,
June 30, 1999; security positions can and do change thereafter. The asset
allocation information provided near the end of this letter is for
disclosure purposes only and is not meant as investment advice.

Animal Rights

TRANSLATION: Bridgeway Social Responsibility Portfolio ranks companies
according to ten social criteria, including animal rights. However, the
animal rights issue is not one of the "negative screens," such as tobacco
and military contracts, which we would exclude before doing a ranking of
all ten social issues. Thus, companies with good records on animal rights
issues are more likely to be purchased into our portfolio. However, it is
possible that a company with a very good record in most of our social
criteria, but which ranks poorly in one, such as animals rights, could
make it into our portfolio. Therefore, this Portfolio may not be an
appropriate investment for an animal rights purist.

For new shareholders of the Social Responsibility Portfolio and for those
who may have missed the discussion in the last quarterly report, I will
review our process for selecting companies for the Portfolio. In addition,
some shareholders have expressed confusion about the process of screening
companies in our Portfolio relative to animal right issues. I will also
clarify our strategy relative to that topic.

The Council on Economic Priorities provides data on ten social criteria
for about 720 companies. Bridgeway augments this data with some of its own
social research. One of the ten social issues is animal rights. We request
that shareholders complete our survey of these same ten criteria,
weighting the areas according to their own social priorities. (If you did
not get a survey, please call us at 800-661-3550x5 or visit
www.bridgewayfund.com/screenin.htm) The aggregate of these weightings
becomes the social weighting of the Portfolio.

Any company in an industry that a majority of shareholders votes to
exclude (currently tobacco and military contracts) is removed from the
list of eligible companies. The remaining companies are ranked according
to the aggregated shareholder responses. In other words, CEP provides the
"report card," and shareholders tell us which subjects are the most
important. Then the Adviser runs the companies in the top fifth of the
social standing through its financial models. We purchase the highest
ranking of these for the Portfolio. Bridgeway will sell a company when it
falls too far in either the social or the financial model ranking.

Except for companies in the tobacco and defense industries, which are
specifically excluded, it is possible for a company to score very high in
several social categories, and low in one or two others. We tend to own
companies with good records on the environment, employment, and animal
rights issues, for example, but it is possible for a company to earn
enough points in the first two categories to make up for a lower score in
the third. VISX, a manufacturer of lasers for eye surgery, received top
marks in hiring and promoting minorities, community outreach, family
issues, and workplace issues. However, it did use live animals for testing
as it was developing its primary product (although it no longer does). At
the other end of the spectrum, Horizon Organic is a dairy farm whose
environmental and animal rights record secured its position in our
Portfolio. (It was our "Story Stock" in the last quarterly letter.) Since
the animal rights issue affects the cumulative score of a company, rather
than its being an issue that would exclude a company from the Portfolio,
this Portfolio may not be an appropriate investment for an animal rights
purist.

3
<PAGE> 168

Bridgeway Fund Turns 5!

On August 5 we celebrated Bridgeway Fund's fifth birthday. You will begin
to see the Social Responsibility Portfolio listed in five-year performance
tables at the end of this month. Since the average tenure of a mutual fund
portfolio manager is three and a half years, I'm starting to feel like an
old timer.

Shareholder Feedback - Home Depot

TRANSLATION: Occasionally we get shareholder feedback warning us about an
unfavorable aspect of the social record of one of our holdings. In the
last quarter we received two of these. The first concerns Home Depot's
record with respect to their use of old growth lumber and clearcutting
practices. In the company's defense, we believe they have made some good
faith efforts in this area. The company also receives the highest
environmental grade from the Council on Economic Priorities. However, the
company has slid from the top fifth to the second fifth of our overall
social ranking, so we plan to gradually exit this holding.

With each shareholder letter, I solicit shareholder feedback, which we
review at staff meetings and take very seriously. Occasionally, we hear
from shareholders concerning a Portfolio company that has received
negative media attention in one or more areas of their social record. We
sold one such company, Nike, from our Portfolio in 1997 following more
detailed social research after a shareholder brought part of the company's
record to our attention. Nike had come under major criticism for workplace
conditions and especially low wages in their plants located in developing
countries. In the last quarter, shareholders brought two companies to our
attention. This analysis is sometimes straightforward, but sometimes very
complex. In the case of Home Depot, the question involves whether the
company is doing enough to address an important issue. Just as there are
no perfect human beings, there are no perfect companies; we want to give
an even-handed review.

Home Depot has been the object of some heavy-hitting allegations and
protests (by organizations including Greenpeace and Rainforest Action
Network) regarding their use of old growth lumber and clearcutting
practices. While Home Depot doesn't engage in these practices directly, it
does purchase lumber from companies that do. As one of the largest
distributors nationwide, and as a socially conscious company, we wanted to
know their response.

Home Depot has made what we believe are some good faith efforts to address
this issue. It features an "Environmental Report Card" on product labels.
In 1998 Home Depot formed an Executive Environmental Council, which has
set up various task forces on waste management, alternative wood products,
and waste sourcing. Finally, the company is the first retailer to pioneer
products certified by the Forest Stewardship Council (FSC). Through this
relationship, Home Depot has introduced several products with
FSC-supported woods, which may be substituted for rare or endangered
woods. Home Depot continues to offer wood produced by companies with
questionable environmental practices, however. The FSC-certified products
comprise less than 1% of wood product sales.

In our final analysis, we have decided to gradually sell Home Depot from
the Portfolio. In support of the company, it scores the highest grade for
environmental issues in the Center for Economic Priorities database. We
agree with the company that this is first an educational issue for
consumers and wood suppliers and feel that Home Depot is making a good
faith effort in education and disclosure. They are clearly doing a better
job of it than some of their competitors. However, there is a fair case
against Home Depot. They do sell lumber from a broad cross-section of
suppliers including those with poor lumbering practices. Given Home
Depot's size, we're not sure that they are doing enough. The compelling
reason for our decision, however, is that the company has fallen from the
top fifth to the second fifth of our social rankings. We want to gradually
shift assets from companies with good records to ones with the best
records in this Portfolio.

For those who would like to do more research on this issue, you may want
to visit www.homedepot.com/cominfo/enviro/enviro2.htm, www.ran.org, and
www.greenpeace.org/~forests/.

4
<PAGE> 169

Shareholder Feedback - The Gap

TRANSLATION: Another shareholder brought The Gap to our attention. The
retailer has been under some "fire" for accusations of sweatshop labor.
Another company owned by Gap founders is involved in clearcutting of
forests. We think The Gap clears our hurdle regarding sweatshop labor but
fails our test with regard to forestry practices. This company has also
fallen into the second fifth of our social rankings, so we will be
removing it gradually from the Portfolio.

There were four social concerns which another shareholder brought to our
attention concerning The Gap: that the company is a "mega-store," that Gap
owners support the Edison Project, that the company runs sweatshops in
developing countries, and that it is involved in forest clearcutting. I
have to admit that in the end I came down on the opposite side of the
hold/sell decision for this company from where I started. I will address
each of the four concerns.

The Gap is definitely a mega-store and a mega-company. Along with a number
of large companies, I'm sure it has put some smaller ones out of business.
As a small business owner myself, I like to root for the smaller company
too. However, a company that is very large is not inherently socially
irresponsible. I am willing to let consumers decide and let market forces
work here. Issues of economic theory aside, this Portfolio is made up
primarily of larger companies. These are frequently the ones with greater
resources to address some of the social issues of concern to our
shareholders. We won't boot The Gap for this reason.

The Gap owners have been criticized for their support of the Edison
Project. The Project allegedly invites segregation and favoritism in
public schools. The purpose of the Edison Project is to "privatize" public
schools by creating a special class that has accelerated levels of
learning. The point that some children will thus be left out is well
taken, but there has to be some selectivity in order for this process to
work, not unlike designating some alumni as Phi Beta Kappa and others not.
This project spans the entire pool of public school students; currently 51
schools in 12 states have implemented the Edison Project. The student
population of the schools breaks down as 45% African-American, 32%
Caucasian, 18% Hispanic, 2% Asian and 3% Other. This project seems to be
quite socially minded - it is a way for less privileged children to
receive the same caliber education as those who can afford (or who are
fortunate enough to receive scholarships) to attend private schools. The
Edison Project is seeking to level the playing field with regard to
pre-college education. While the point that some children will be left out
is well taken, we do applaud efforts to try new things (even old things
with a new twist) within education. We won't boot The Gap for this reason.

Regarding The Gap's use of sweatshop labor, we found that they have a
lengthy and detailed Code of Vendor Conduct (accessible through
www.gap.com) which clearly outlines the requirements that any company must
meet in order to do business with The Gap. The code addresses the health,
safety and well being of factory workers. It demands compliance with
applicable law, bans discrimination and forced labor, and states exact
specifications for the workplace itself. The Gap appears to have adequate
resources and commitment to enforce the Code. We won't boot The Gap for
this reason.

The last claim concerning clearcutting is a very interesting one to me. It
hinges on the issue of whether we should expect the same conduct of
corporate executives in business dealings outside the company that we
expect from the company itself. Here are the facts. In 1998, the Fisher
family, owners and founders of The Gap, bought 230,000 acres of California
Redwood forestland from Louisiana Pacific. This land has been submitted to
heavy logging by the Mendocino Redwood Company, as well as clearcutting,
cutting of old growth, and spraying of toxic pesticides. The details are
somewhat difficult to ferret out since the company is privately held.
Apparently, only one family member, John Fisher, brother of the Executive
Vice President, has an active role in the operation of the logging that
takes place on the land. However, the entire family reaps the benefits of
this investment, and the whole operation is repeatedly referred to as a
"Fisher family investment." The alleged operations of this logging
operation sound flagrant and the alleged response inadequate. I certainly
would not tolerate such actions and response from The Gap; should we
tolerate it from executives who work at The Gap? Three Fisher family
members sit on The Gap board of directors. The family involvement causes
me significant concern. It is

5
<PAGE> 170

enough to warrant selling our Gap position. I plan to do this gradually,
since the Portfolio will recognize some capital gains. Our position in The
Gap has appreciated five-fold over the last three years.

The Worst Thing That Happened in Fiscal Year 1999

TRANSLATION: This is the section in which I annually reflect on the worst
thing that happened at Bridgeway. The worst thing in 1999 was my holding
on to some beaten-up ultra-small stocks too long. Although several
Bridgeway Portfolios felt the effects, it cost our Ultra-Small Company
Portfolio shareholders on the order of seven and a half percentage points
in the middle of the worst ultra-small downturn since 1974. A steep market
correction is not the time to make such mistakes. Although I believe that
in the long-term there is a strong possibility that ultra-small stocks
will outperform large ones, sifting out the under-performing ones is
essential..

It's a Bridgeway tradition to highlight in each annual report the worst
thing that happened at Bridgeway in the course of the last year. We try to
create an atmosphere within which all Bridgeway employees, including
myself, can be open about our mistakes. We want to learn everything we can
from them, and it's impossible to do so if they are not acknowledged and
in open view. I subscribe to the view that mistakes are the "jewels" which
allow us to learn and grow. When I make mistakes, I'm committed to
learning from them and not repeating them. As a shareholder of the Fund,
you are an owner, my boss, and I want you to know, too.

Last year, Fiscal Year 1998, we had a tie for first place: failure to
launch a web site and a small pricing error. I am pleased to report that
we did launch our web site in 1999 (www.bridgewayfund.com) and that we
have not repeated the pricing error. To put the latter mistake in
perspective, most funds make pricing errors sooner or later, but we
shouldn't have made that one. In line with frequent industry practice, the
Adviser "made the Portfolio whole," reimbursing the cost of the mistake.
In 1999 we have been working hard to upgrade our financial controls and
compliance standards. I believe we now have some of the most stringent
pricing controls in the industry.

The worst mistake in Fiscal Year 1999 was in the ultra-small holdings in
several of our Portfolios, particularly the Ultra-Small Company Portfolio.
This Portfolio had its first negative fiscal year performance in its
history, down 14.5%. A portion of this is beyond our control; ultra-small
stocks experienced the worst downturn since 1974 during the last year.
They recovered partially, and the asset class was down 4.2% for the year
ended June 30. Value stocks did much more poorly than growth stocks.
Nevertheless, for the first time in four years we underperformed our asset
class benchmark in an asset class that should be the easiest to beat. We
underperformed our micro-cap value-oriented competition by seven and a
half percentage points. The mistake I made was holding on to beaten-up
stocks too long after their fundamentals had started to deteriorate
significantly. I should have learned this lesson from previous downturns,
even if they were not as severe as last year.

How Can We Do It Better? - Disclosure of Manager Pay and Fund Ownership

In the discussion below, the "Fund" includes all six portfolios of
Bridgeway Fund. The "Adviser," is Bridgeway Capital Management, Inc., the
firm that employs Bridgeway staff and charges the Fund a fee for
investment advisory services.

About a year ago, various journalists criticized the mutual fund industry
for lack of disclosure of manager pay and fund ownership. Public companies
are required to disclose stock ownership and executive pay, so why aren't
mutual funds? The following are extracts from some of the articles:

6
<PAGE> 171

... In fact, fund shareholders are often left in the dark about what
some consider to be the most important disclosure question of all:
Does the fund manager invest in the fund that he or she manages?
Whether your fund manager "eats his own cooking" is a provocative
question for fund companies. ... Fund managers demand similar
shareholder information from the major executives of companies they
look to invest in. So why shouldn't fund investors be given the same
opportunity?

Wall Street Journal, 3/18/98

[At a recent mutual fund industry conference] ... one person asked
why fund companies are so reluctant to disclose manager's ownership
interests in their own funds. ... To defend the industry, [a fund
executive] erected the usual ... straw man. He said that it would be
unfair to require a 35-year-old muni-bond manager to put a lot of his
personal resources into an obviously inappropriate investment for
someone that age. A lot of fund companies must have 35-year-old
muni-bond managers, because that seems to be the 100th time I've heard
that defense. This excuse doesn't hold water. Most investors wouldn't
expect a young manager to put a lot of his or her own money into a
muni fund. And at any rate, the fund companies could explain away this
situation in a brief paragraph in each shareholder report.

Scott Cooley, Morningstar.net, 5/21/98

And recently a somewhat dissenting view:
Yes, it would be nice if you could know how your fund manager's
performance is being measured--whether on the fund's asset growth,
pure returns, or risk-adjusted returns, for example--so you, as a
shareholder-owner, would know if the manager's interests are aligned
with or in conflict with your own. But worrying about how much that
manager makes simply isn't worth the effort.

Gregg Wolper, Morningstar.net, 5/21/98

It's probably not worth the effort because it's also not possible. Mutual
funds companies are required to disclose the total fund ownership of all
officers and directors as a group. Executive salaries of publicly traded
investment advisory firms are available, but typically they don't include
portfolio managers' salaries. By now, you probably see where I'm headed.

Bridgeway is not afraid to break new ground in the industry. We were the
first fund company to provide shareholders with personalized performance
numbers. We were the first to close a portfolio at what is a laughably low
level by industry standards because we felt it was in shareholders' best
interests. We have walked away from legal brokerage commission structures
(soft dollar commissions) which would have taken money right out of
shareholders' pockets and put it into the Adviser's. We are not afraid to
prohibit Bridgeway portfolio managers from investing in a security which a
Bridgeway portfolio might also own. (We were not the first, but we are in
a tiny minority.) Thus, Bridgeway Fund is my only outlet for domestic
stock market investing.

I can think of only two reasons not to disclose my compensation and
investing status. First, it will eat up another two or three pages of this
paper to disclose and explain. Second, I was raised to believe one does
not talk publicly about one's salary. (At least I think I was. We never
talked openly about salaries and we never talked about not talking about
salaries. So I may be breaking a family dinner table rule here; I'm sure
my family will let me know; several are also shareholders.)

7
<PAGE> 172

Total compensation in the table above includes SEP IRA contributions of
$2,391, shareholder distributions of $8,200 and loans of $36,625. These
figures are from the Adviser's unaudited financial statements.

I want to answer some potential questions about the table and articles
above.

Does the Fund pay the Portfolio Managers' compensation?

No, but there is a financial relationship. Bridgeway Fund pays an
investment advisory fee to the Adviser, which in turn helps pay all the
expenses of the Adviser, including my salary. The Adviser may also make
dividend distributions to all Adviser shareholders, or loans to any
individual.

How is the Portfolio Manager's compensation tied to Bridgeway Fund's
performance?

My compensation is tied to portfolio performance in two ways. First, the
advisory fee, which the Social Responsibility Portfolio pays to the
Adviser, is a function of Portfolio performance. Specifically, the
management fee varies from 0.2% of net assets to 1.6% depending on our
trailing five-year performance relative to the S&P 500. (To put this in
perspective, only 6% of domestic equity funds outperformed this index in
the most recent five years. If these funds adopted our structure, their
average fee would be only 0.3%, significantly less than the actual.) For
each $1 million in assets, the Social Responsibility annual management fee
can be as low as $2,000 or as high as $16,000. Financially, I am very
focused on our performance. A performance-based management fee greatly
changes how the Adviser thinks about the balance between performance and
asset growth. I believe most advisers are more concerned with asset growth
than performance. Since asset growth is an enemy of fund performance in an
actively managed fund, I have a strong incentive not to let our fund grow
past the point of my managing it well.

The second and more direct way that my compensation is tied to my
performance is through my salary. Salaries for all full-time Bridgeway
employees, including myself, have a component tied to profitability of the
Adviser and a component tied to personal performance. The profitability of
the Adviser is a function of Portfolio performance through the
performance-based fee. (You can imagine that the Bridgeway staff is quite
interested in how well I do my job - besides the fact that each and every
one of them is also a shareholder of one or more Bridgeway portfolios.) My
personal performance is a function of specific goals, which are integrity
(10%), investment performance (50%), efficiency (10%), service (20%), and
asset growth (10%). The investment performance of our Portfolios thus
comprises half of the evaluation score that determines my salary.

There is a lot of variability in your compensation from year to year. Why
is this?

In the first years of Bridgeway, before the Adviser was making a profit
for itself, I contributed capital to help cover expenses. There was no
reason to draw a salary. I began drawing a salary as our cash flow
allowed. Last year I kept my salary low because 1) the Adviser profits
were lower than anticipated [we endured a twenty-year "small-stock
storm,"] and 2) I wanted to meet federal requirements to roll my IRA into
a Roth IRA.

Recent articles indicate that the median mutual fund manager total cash
compensation is $274,500. Couldn't you make more working at another fund
company?

Yes, currently that is true, but I can't imagine having nearly as much
fun, joy or input. There are several reasons my salary is lower. First,
Bridgeway's asset base is much smaller than the average fund. Second,
after our expense ratio, we still trail the S&P 500, so our fees and my
salary are commensurately lower. Third, by Bridgeway policy, no employee's
compensation can be more than seven times that of the lowest paid
employee. This isn't a constraining factor yet, but it will be before I
reach the industry average. This policy is important to our company's
culture and business strategy. The ratio of the highest to lowest paid
employees among the largest U.S. companies has grown from 44 to 1 in 1965
to

8
<PAGE> 173

326 to 1 in 1997. And while I'm not proposing that 7 to 1 should be a
standard across corporate America, I do think executive salaries have
gotten out of hand.

If Bridgeway profits take off, won't you just be taking big distributions,
making your salary number irrelevant?

Some day this could be the case. We are a for-profit corporation; I am not
the only shareholder, and I did make a significant investment to found
Bridgeway. However, let me fill you in on some of Bridgeway's unusual
distribution plans. Part of Bridgeway Capital Management's mission
statement is to contribute just over half of its own profits to charitable
and non-profit organizations. Eventually I do intend to recover the
capital contributions I made to Bridgeway. Before this is complete, we
will be donating at least 10% of annual profits to charities; afterward,
just over half. The other portion of our profits is available for working
capital and for shareholder distributions. I have committed to contribute
20% of my Bridgeway Capital Management shares to an employee stock
ownership plan. I have a life goal of giving away $100 million annually
when I retire. If I succeed at this, I will have helped make many Fund
shareholders quite happy along the way. (Remember our performance-based
fees; we only do well when our Fund shareholders do well.) As you may be
able to tell, I take great joy in both receiving and giving. From time to
time I encourage our shareholders in the area of generosity, which offends
a few, but "lights up" others. Some shareholders don't care what we do
with our money as long as the Fund is making money for them.

You can only invest in the stock market through Bridgeway Fund. How much
of each Portfolio do you own and why?

My target asset allocation is 62% Ultra-Small Company Portfolio, 5%
Micro-Cap Limited, 25% Aggressive Growth, and 8% Social Responsibility. My
actual valuation varies with portfolio fluctuations. At the end of June,
my IRA account, my wife's IRA, plus my interest in a small investment by
Bridgeway Capital Management was worth $116,000. I expect to be making
additional investments in Bridgeway Fund as my family college tuition
expense declines and I pay down my debt.

There are three reasons for my rather "aggressive" allocation between the
Bridgeway portfolios. First, I have a very high tolerance for short-term
risk with money I invest for the long-term. (I don't put money that I
might need to spend in the next couple of years in the stock market, I put
it in a short-term bond fund or the highest yielding money market fund I
can find.) Almost all of my stock market money is my long-term retirement
money. I don't expect to retire in the next 20 years. I do expect the
stock market to go through several major corrections before then, but I
have overall faith in the U.S. economy and would expect the market to
recover, given enough time. So I generally ignore short-term fluctuations
and don't lose any sleep when my investments are down 30-40% from their
peak. It's the nature of the stock market to "correct" itself.

Second, since I am disciplined in ignoring short-term fluctuations, I seek
out asset classes and diversifying stock picking models with higher
short-term volatility coupled with historically higher average annual
return. I avoid investments that use leverage to gain additional stock
market exposure. This is how you really get in trouble in a major
correction. Over the last fifteen years my strategy has worked very well.
It would not work as well in an extended recession, but I don't anticipate
recessions that last twenty years, or even ten. Although, of course,
theoretically they could.

Third, since most of my investments are through my IRA, it is easy to
ignore the effect of taxes. However, the Social Responsibility Portfolio
has been fairly tax efficient even in a taxable account. In the future,
when I invest in Bridgeway Fund through a taxable account, I still plan
primarily to use our actively managed portfolios, but I may hedge some by
also investing a bit in our two extremely tax efficient portfolios,
Ultra-Small Index and Ultra-Large 35 Index.

9
<PAGE> 174

models I have used for the longest period of time personally, since 1985.
Social Responsibility focuses on social issues I am interested in, as well
as financial performance.

Total Returns of Other Bridgeway Portfolios

Some shareholders have requested that we periodically present the
performance of all Bridgeway portfolios. Numbers in bold indicate the top
performing portfolio in a given period. The performance figures help
illustrate the advantage of diversification, even across some of our
portfolios. This data is presented in the more common format of calendar,
rather than fiscal years.

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aggressive Growth 8.8 27.1 32.2 18.3 19.3 25.5 27.1 23.4 33.4
Ultra-Small Company -2.8 39.8 29.7 38.0 -13.1 1.4 16.9 -5.1 -14.5
Social Responsibility 1.5 30.3 16.2 27.5 37.8 11.3 25.2 28.7 26.2
Ultra-Small Index -1.8 1.4 -0.4 -12.8
Ultra-Large 35 Index 39.1 14.1 27.4 30.3
Micro-Cap Limited 7.6* 18.6 27.6

*Includes the period 7/1/99 - 12/31/99 only

Bridgeway Formalizes Expense Limitations

At the August 18 meeting of the Fund's Board of Directors, the directors
voted unanimously to amend the management contract with the Adviser
(Bridgeway Capital Management) to include the 1.5% expense limitation in
the body of the contract. However, if the performance adjustment portion
of the management fee is positive for the Social Responsibility Portfolio,
the expense ratio will be reimbursed to the level of 1.5% plus the
performance adjustment up to a maximum expense ratio of 2.0%. The expense
reimbursement was previously an "undertaking" of the Adviser outside of
the management contract. Its inclusion in the contract means that the
expense limitation cannot be increased in the future without a vote of
shareholders. Since it was never our intention to raise the expense
limitation, both the Fund and the Adviser were happy to add this language
to the contract. This change will be effective in the contract and
incorporated in our new prospectus dated October 31, 1999.

Year 2000 Preparedness

TRANSLATION: Operationally, we consider ourselves ready. Investment-wise,
we're ignoring it. This is a conscious, reasonable, and intentional
decision on our part.

Bridgeway believes that its internal systems are ready for potential
software and hardware issues which could arise from the year 2000.
Operationally, there is still some risk that the phone company, electric
utility, or other supplier will not be ready. However, we have taken
reasonable steps to ensure our vendors' compliance and we have made some
contingency plans. We are taking it seriously.

10
<PAGE> 175

comprise the index, regardless of their degree of preparedness. In the
case of our actively managed funds, we have no model variables for "Y2K,"
and plan to continue to follow our current models in a disciplined way. We
feel there is just as high a risk from being out of the market for a
period as there is exposing our Portfolio to a Y2K-related market decline.

Conclusion

As always, we appreciate your feedback. We take it seriously and have made
continuing improvements because people have taken the time to write or
call us. The table above is just one example. Please keep your ideas
coming.

Sincerely,

/s/ JOHN MONTGOMERY

John Montgomery

11
<PAGE> 176

BRIDGEWAY FUND, INC.
SOCIAL RESPONSIBILITY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1999

<TABLE>
<CAPTION>
Industry Company Shares Value
-------- ------- ------ -----

<S> <C> <C> <C>
Common Stock - 96.1%
Aluminum & Products - 1.1%
InVision Technologies, Inc.* 5,900 $ 30,238

Automobiles - 2.2%
Ford Motor Company 1,100 62,975

Banking - 8.3%
BankBoston Corporation 90 4,601
MBNA Corporation 1,687 51,664
Mid-State Bancshares 1,700 57,375
The Chase Manhattan
Corporation 1,400 121,100
------------
234,740

Data Processing - Hardware - 6.1%
International Business Machines
Corporation 1,340 173,530

Data Processing - Software & Services - 11.7%
CNET, Inc.* 832 47,944
Microsoft Corporation* 1,320 119,048
Unify Corporation* 12,000 162,000
------------
328,992
Drugs-Generic and OTC - 9.3%
Eli Lilly and Company 790 56,584
Merck & Co., Inc. 820 60,373
Pfizer Inc. 610 66,490
Schering-Plough Corporation 1,476 77,490
------------
260,937
Electronics/Electric - 4.7%
Intel Corporation 80 4,760
Xerox Corporation 2,150 126,984
------------
131,744
Finance - 5.2%
Federal National Mtg. Assn 1,640 111,930
SLM Holding Corporation 770 35,276
------------
147,206

Food - 6.0%
Ben & Jerry's Homemade, Inc.* 3,650 101,288
Green Mountain Coffee, Inc.* 7,400 50,644
Horizon Organic Holding
Corporation* 1,100 16,088
------------
168,020

Health Care Facilities - Services - 3.4%
PacifiCare Health Systems, Inc.* 1,340 96,396

Leather & Shoes - 2.3%
The Timberland Company 940 63,979

Leisure-Amusement - 3.6%

Time Warner Inc. 1,400 101,675

Machinery - 4.5%
VISX, Inc.* 1,600 126,700

Medical Equipment/Supplies - 4.1%
Johnson & Johnson 640 62,720
WRP Corporation* 9,300 52,603
------------
115,323

Retail Stores - 18.5%
Dayton Hudson Corporation 1,100 $ 71,500
Safeway Inc.* 1,424 70,488
Starbucks Corporation* 3,400 127,713
The Gap, Inc. 2,869 144,513
The Home Depot, Inc. 1,670 107,611
------------
521,825
Telecommunications - 3.2%
Vodafone Group Public Limited
Company* 465 91,605

Transportation - 1.9%
RailAmerica, Inc.* 5,200 53,625

============

Total Common Stock (Identified Cost $1,899,761) $ 2,709,510

============
Options - 0.1%
S&P 100 Index - 0.1%
January, 2000 Puts @ 620* 2 4,225

------------

Total Options (Identified Cost $6,402) $ 4,225

Short-term Investments - 1.6%
Money Market Funds - 1.6%
Expedition Money Market Fund 7,511 7,511
Federated Money Market Prime
Obligations Fund 7,511 7,511
Federated Money Market Trust
Fund 7,069 7,069
Federated Prime Obligations
Fund 7,069 7,069
SEI Daily Income Trust Money
Market Fund 7,511 7,511
SEI Daily Income Trust Prime
Obligations Fund 7,511 7,511
------------
44,182

============

Total Short-term Investments
(Identified Cost $44,182) $ 44,182

============

Total Investments - 97.8% $ 2,757,917

Other Assets and Liabilities, net - 2.2% 61,669

------------

Total Net Assets - 100.0% $ 2,819,586
============
</TABLE>

* Non-income producing security as no dividends were paid during the period
from July 1, 1998 to June 30, 1999.

** The aggregate identified cost on a tax basis is $1,950,345.
Gross unrealized appreciation and depreciation were $866,591 and
$59,019, respectively, or net unrealized appreciation of $807,572

See accompanying notes to financial statements.

<PAGE> 177

BRIDGEWAY FUND, INC. - SOCIAL RESPONSIBILITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 1999

<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments at value (cost - $1,950,345) $2,757,917
Cash 58,256
Receivable for interest 289
Receivable for dividends 769
Receivable from adviser 157
Prepaid expenses 7,643
----------
Total assets 2,825,031
----------

LIABILITIES:
Payable for management fee 15
Accrued expenses 5,430
----------
Total liabilities 5,445
----------
NET ASSETS (106,590 SHARES OUTSTANDING) $2,819,586
==========
Net asset value, offering and redemption price per share ($2,819,586 / 106,590) $ 26.45
==========

NET ASSETS REPRESENT:
Paid-in capital $1,981,013
Net realized gain 31,001
Net unrealized appreciation of investments 807,572
----------
NET ASSETS $2,819,586
==========
</TABLE>

BRIDGEWAY FUND, INC. - SOCIAL RESPONSIBILITY PORTFOLIO
STATEMENT OF OPERATIONS
For the year ended June 30, 1999

<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 8,802
Interest 8,975
---------
Total income 17,777

EXPENSES:
Management fees 3,966
Accounting fees 18,118
Audit fees 5,201
Custody 3,286
Amortization of organization costs 4,610
Insurance 175
Legal 77
Registration fees 6,069
Directors' fees 711
---------
Total expenses 42,213
Less fees waived (12,518)
---------
Net expenses 29,695
---------

NET INVESTMENT LOSS (11,918)
---------

NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 26,525
Net realized gain on options 4,477
Net change in unrealized appreciation 443,829
---------
Net realized and unrealized gain 474,831
---------

NET INCREASE IN ASSETS RESULTING FROM OPERATIONS $ 462,913
=========
</TABLE>

See accompanying notes to financial statements.

<PAGE> 178

BRIDGEWAY FUND, INC. - SOCIAL RESPONSIBILITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
Year ended Year ended
INCREASE (DECREASE) IN NET ASSETS: June 30, 1999 June 30, 1998
OPERATIONS:
<S> <C> <C>
Net investment income (loss) $ (11,918) $ 215
Net realized gain on investments 26,525 43,383
Net realized gain on options 4,477 0
Net change in unrealized appreciation 443,829 246,810
----------- -----------
Net increase resulting from operations 462,913 290,408
----------- -----------
Distributions to shareholders:
From net investment income 0 (547)
From realized gains on investments (12,184) (30,868)
----------- -----------
Total distributions to shareholders (12,184) (31,415)
FUND SHARE TRANSACTIONS:
Proceeds from sale of shares 1,562,038 671,280
Reinvestment of dividends 11,534 28,882
Cost of shares redeemed (677,938) (123,861)
----------- -----------
Net increase from Fund share transactions 895,634 576,301
----------- -----------
Net increase in net assets 1,346,363 835,294
NET ASSETS:
Beginning of period 1,473,223 637,929
----------- -----------
End of period (including undistributed investment
income of $724 on June 30, 1998) $ 2,819,586 $ 1,473,223
=========== ===========

Number of Fund shares:
Sold 65,562 34,827
Issued on dividends reinvested 592 1,681
Redeemed (29,256) (6,179)
----------- -----------
Net increase 36,898 30,329
Outstanding at beginning of period 69,692 39,363
----------- -----------
Outstanding at end of period 106,590 69,692
=========== ===========
</TABLE>

See accompanying notes to financial statements.

<PAGE> 179

BRIDGEWAY FUND, INC. - SOCIAL RESPONSIBILITY PORTFOLIO
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the period)

<TABLE>
<CAPTION>
Year ended Year ended Year ended
June 30, 1999 June 30, 1998 June 30, 1997
<S> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period $ 21.14 $ 16.21 $ 14.68
------------- ------------- -------------
Income (loss) from investment operations:
Net investment income (loss) (0.14) 0.00 0.03
Net realized and unrealized gain 5.62 5.57 2.31
------------- ------------- -------------
Total from investment operations 5.48 5.57 2.34
------------- ------------- -------------
Less distributions to shareholders:
Net investment income (loss) 0.00 (0.01) 0.00
Net realized gains (0.17) (0.63) (0.81)
------------- ------------- -------------
Total distributions (0.17) (0.64) (0.81)
------------- ------------- -------------
Net asset value, end of period $ 26.45 $ 21.14 $ 16.21
============= ============= =============

TOTAL RETURN [1] 26.2% 35.3% 16.9%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period $ 2,819,586 $ 1,473,223 $ 637,929
Ratios to average net assets: [2]
Expenses after waivers and reimbursements 1.50% 1.50% 1.50%
Expenses before waivers and reimbursements 2.13% 3.81% 5.81%
Net investment income (loss) after waivers and reimbursements (0.60%) 0.02% 0.24%

Portfolio turnover rate [2] 58.0% 37.8% 35.5%

<CAPTION>
Year ended 8/5/94* to
June 30, 1996 June 30, 1995
<S> <C> <C>
PER SHARE DATA
Net asset value, beginning of period $ 11.61 $ 9.85
------------- -------------
Income (loss) from investment operations:
Net investment income (loss) (0.02) 0.07
Net realized and unrealized gain 3.11 1.70
------------- -------------
Total from investment operations 3.09 1.77
------------- -------------
Less distributions to shareholders:
Net investment income (loss) (0.02) (0.01)
Net realized gains 0.00 0.00
------------- -------------
Total distributions (0.02) (0.01)
------------- -------------
Net asset value, end of period $ 14.68 $ 11.61
============= =============

TOTAL RETURN [1] 26.6% 18.9%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period $ 360,960 $ 64,421
Ratios to average net assets: [2]
Expenses after waivers and reimbursements 1.48% 1.46%
Expenses before waivers and reimbursements 16.80% 72.83%
Net investment income (loss) after waivers and reimbursements (0.17%) 0.90%

Portfolio turnover rate [2] 83.8% 71.7%
</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.
<PAGE> 180
BRIDGEWAY FUND, INC.
SOCIAL RESPONSIBILITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS

1. Organization:

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

The Fund is organized as a series fund and has 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 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, including options, 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.

Distributions to Shareholders

Distributions to shareholders are recorded when declared. The Fund
distributes net realized capital gains, if any, to its shareholders at
least annually, if not offset by capital loss carryovers. Distributions of
net investment income and realized short-term capital gains, if any, are
taxable as ordinary income to shareholders. 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. These differences are primarily due to the differing treatment
of net operating losses and tax allocations.

Use of Estimates in Financial Statements

<PAGE> 181

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

2. Significant Accounting Policies, Continued:

Risks and Uncertainties

The Fund provides for various investment options including stocks and call
and put options. Such investments are exposed to various risks, such as
interest rate, market and credit. Due to the level of risk associated with
certain investments and the level of uncertainty related to changes in the
value of investments, 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 the 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 are no
12b-1 fees.

Other

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

Assets in the Social Responsibility Portfolio are very low, and may remain
so in the immediate future. Because commission cost per trade is
unacceptably high as a percentage of assets, the Adviser reimburses this
Portfolio for any commissions above one cent/share. The Adviser expects to
continue this practice until portfolio net assets reach at least $5
million.

3. Use of Derivative Instruments:

The Social Responsibility Portfolio may use derivative securities such as
the purchases and sales of futures and stock and index options to hedge
risk. (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 Social Responsibility Portfolio follows:

<TABLE>
<CAPTION>
Call Options Put Options
---------------------- ----------------------
Number Cost Number Cost
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Options outstanding June 30, 1998 0 $ 0 0 $ 0
Options purchased 18 25,268 11 16,057
Options exercised (0) (0) (2) (1,052)
Options closed (18) (25,268) (7) (8,603)
-------- -------- -------- --------
Options outstanding June 30, 1999 0 $ 0 2 $ 6,402
======== ======== ======== ========

Market value June 30, 1999 $ 0 $ 4,225
======== ========
</TABLE>

<PAGE> 182

BRIDGEWAY FUND, INC.
SOCIAL RESPONSIBILITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS, 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
each portfolio's average daily net assets, 0.875% of the next $250 million
and 0.85% of any excess over $500 million.

The fee is adjusted quarterly 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.

The Adviser has agreed to reimburse the Social Responsibility Portfolio for
any operating expenses above 1.5%. To achieve this expense level the
Adviser has waived the management fees and $8,552 of the accounting fees
for the year ended June 30, 1999.

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 $2,159,930 and $1,028,715, respectively for the year ended
June 30, 1999.

8. Federal Income Taxes:

During the year ended June 30, 1999, the Fund paid a long-term capital gain
distribution of $0.1655 per share to shareholders of record.

<TABLE>
<S> <C>
Paid-in capital $(14,729)
Undistributed net investment income 11,194
Undistributed net realized gain 3,535
</TABLE>

<PAGE> 183
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of Bridgeway Fund, Inc.
and Shareholders of the Ultra-Small Index Portfolio:

In our opinion, the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, and the related statements of operations
and changes in net assets and financial highlights present fairly, in all
material respects, the financial position of the Ultra-Small Index Portfolio
(one of the portfolios constituting Bridgeway Fund, Inc) at June 30, 1999, the
results of its operations for the year then ended, the changes in its net assets
and the financial highlights for the year then ended and for the period from
July 31, 1997 (commencement of operations) to June 30, 1998, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at June 30, 1999 by correspondence with the
custodian, provides a reasonable basis for the opinion expressed above.

/s/ PRICEWATERHOUSECOOPERS LLP

Houston, Texas
August 23, 1999
<PAGE> 184
[BRIDGEWAY LOGO]

August 27, 1999

Dear Ultra-Large 35 Index Portfolio Shareholder,

The awesome performance continues! We just can't hold these companies back (in
the current environment). The largest U.S. companies continued to outshine
almost every other domestic asset class in sight for the second fiscal year
ending June 30. The Ultra-Large 35 Index Portfolio gained 30.3% over the last
year, significantly ahead of the S&P 500 Index return and nearly double the
return of the average growth and income fund. For the second year in a row, it
really paid to be not just large, but ULTRA-large. The Portfolio ranked 17th of
759 growth and income funds and number one of 51 tax-managed funds over the last
year, according to Morningstar. Combined with our extreme tax and cost
efficiency, our 30% return really is sweet. The new symbol for the Portfolio is
BRULX.

The following table presents SEC standardized performance for our Portfolio and
various benchmarks. The graph at the bottom of the page shows our cumulative
quarterly performance versus the same benchmarks.

<TABLE>
<CAPTION>
1 Year Life-to-Date
7/1/98 7/31/97 to
to 6/30/99 6/30/99(4)
---------- -----------
<S> <C> <C>
Ultra-Large 35 Index Portfolio 30.3% 27.4%
S&P 500 Index(1) 22.8% 22.7%
Bridgeway Ultra-Large 35 Index(2) 30.5% 27.5%
Lipper Growth and Income Funds(3) 15.3% 15.7%
</TABLE>

(1) The S&P 500 Index is an unmanaged index of large companies with
dividends reinvested.

(2) The Bridgeway Ultra-Large 35 Index is an index comprised of some of the
very large, "blue chip" U.S. stocks, excluding tobacco; it is compiled by
the adviser to the Portfolio.

(3) The Lipper Growth and Income Funds reflect the aggregate record of
domestic growth and income mutual funds as reported by Lipper Analytical
Services, Inc. Past performance does not guarantee future returns.

(4) Life-to-date returns are annualized.

GROWTH OF $10,000 INVESTED IN VARIOUS FUNDS AND INDEXES
FROM 7/31/97 (INCEPTION) TO 6/30/99

[CHART]

<TABLE>
<CAPTION>
Fund / Index Name Total Value
----------------- -----------
<S> <C>
Bridgeway Ultra-Large 35
Index Portfolio $ 15,902

Bridgeway Ultra-Large 35
Index $ 15,926

S & P 500 Index $ 14,802
</TABLE>

<PAGE> 185

Explanation of Annual Performance

TRANSLATION: For the second year in a row, it paid to be ultra-large. Our
technology stocks carried Portfolio returns to new highs. That just about says
it.

In Fiscal Year 1999, our exclusive focus on ultra-large companies helped push
our Portfolio prices to new highs as investors continued to pour money into
large companies. There are a number of reasons for this. First, stockholders
continue to invest large sums in S&P 500 Index funds, driving up the prices of
these stocks. Second, even actively managed institutional funds continue to turn
to ultra-large stocks as a quick way to invest money in the stock market. Unlike
small stocks, they are much easier to trade without "moving the price"
adversely. Third, people continue to flock to the perceived safety of larger
stocks. Fourth, this year has been a market environment in which people have
invested in momentum stocks, those which have done well in the past. Fifth, the
earnings of many of these companies continue to do well in a low-inflationary
environment.

Since our stocks were exclusively in the first decile, they enjoyed some of the
highest returns. Furthermore, they were the largest companies within this
decile, so our return was even more outstanding.

Looking at the Portfolio by industry, our slightly greater weighting of
technology stocks (27.2% at the end of the year) helped in Fiscal Year 1999 for
the second year in a row. The S&P 500 Index holds 20.8% technology, and the Dow
Jones Industrial Average holds 11.4%. Seven of the top ten Ultra-Large stocks
were in technology. The return of all ten technology stocks in our Portfolio was
an astonishing 63% for the year. It doesn't get much better than this. The
return of our six telecommunications companies was also a strong 40.2%. (One of
these companies is now "dormant;" we add no new money to it.)

The next page presents the returns of our ultra-large stocks for the Fiscal
Year. The returns for the new stocks we added to the Index are for the time
period from March through June only; thus, the time period for the stocks
labeled "new" are for three months rather than twelve.

2
<PAGE> 186

Total Return for Ultra-Large 35 Index Portfolio Stocks in Fiscal Year 1999

<TABLE>
<CAPTION>
Rank Company Industry % Change
---- ------- -------- --------
<S> <C> <C> <C>
1 Oracle Corp. (dormant) Data Processing-Software 126.7%
2 IBM Corp. Data Processing-Hardware 125.2%
3 Cisco Systems, Inc. Data Processing-Hardware 110.0%
4 Motorola Inc. (dormant) Electronics/Electric 80.3%
5 MCI Worldcom Inc. Telecommunications 77.7%
6 Hewlett-Packard Co. Specialty Instruments 67.8%
7 Microsoft Corp. Data Processing-Software 66.4%
8 Intel Corp. Electronics/Electric 60.5%
9 Wal Mart Stores Inc. Retail Stores 58.8%
10 AT&T Corp. Telecommunications 46.6%
11 SBC Communications Inc. Telecommunications 45.0%
12 Bell Atlantic Corp. Telecommunications 43.3%
13 Johnson & Johnson Medical equipment/Supplies 32.4%
14 Mobil Corp. Oil & Gas 28.9%
15 Lucent Technologies Inc. (new) Telecommunications 24.9%
16 General Electric Co. Electronics/Electric 24.3%
17 Bristol-Myers Squibb Co. Drugs-Generic and OTC 22.6%
18 American International Group, Inc. Insurance 20.5%
19 General Motors Corp. Automobiles 19.5%
20 Citigroup Inc. Banking 19.3%
21 McDonalds Corp. Food Serving 19.2%
22 Chevron Corp. Oil & Gas 13.5%
23 Federal National Mortgage Assn. Finance 12.3%
24 Merck & Co. Inc. Drugs-Generic and OTC 10.1%
25 GTE Corp. (dormant) Telecommunications 8.8%
26 Exxon Corp. Oil & Gas 8.1%
27 Delphi Automotive Systems Corp. (spin-off) Auto parts 4.2%
28 The Home Depot, Inc. (new) Retail Stores 3.5%
29 Time Warner Inc. (new) Leisure-Amusement 2.6%
30 Pfizer Inc. Drugs-Generic and OTC 0.3%
31 Proctor & Gamble Co. Household Products (2.0)%
32 Ford Motor Co. Automobiles (4.3)%
33 BankAmerica Corp. Banking (4.4)%
34 Pepsico Inc. (sold) Beverages (4.9)%
35 Du Pont, E I De Nemours & Co. Chemicals (8.5)%
36 Dell Computer Corp. (new) Data Processing-Hardware (9.5)%
37 The Walt Disney Co. Leisure-Amusement (12.0)%
38 Lilly, Eli & Co. (new) Drugs-Generic and OTC (15.6)%
39 America Online Inc. (new) Data Processing-Services (25.2)%
40 The Coca-Cola Co. Beverages (27.5)%
41 Gillette Co. Cosmetics & Toiletries (27.9)%
</TABLE>

One factor that had held back our performance in Fiscal Year 1999 was our
significant exposure to "value" stocks, defined as those in more mature
industries, or those growing at a modest rate. 88% of the domestic equity funds
which beat our performance in the last year had a much stronger "growth" rather
than "value" orientation. (Growth stocks have faster increasing sales and
earnings.) The Ultra-Large 35 Index Portfolio is a "blend" fund, meaning it
usually holds about equal numbers of each. Last year, statistical measures of
value versus growth indicated that compared to the S&P 500 Index, our

3
<PAGE> 187

Portfolio was slightly more on the value side. As of June 30, 1999, however, we
lean slightly in the direction of growth stocks.

Top Ten Holdings

All 35 are top ten! (...at one time or another.) This Portfolio is roughly
equally weighted, so no one company dominates the Portfolio over time.

Let's be Realistic About Expectations

TRANSLATION: While our Portfolio performance in our first two years has been
awesome, please don't expect 30% returns every year. Based on historical data, a
more normal year of ultra-large stock returns is about 10%. One should expect a
down year almost one out of every three years. We're overdue for one, although
that probably doesn't mean you should bail out of the market if you are a
long-term investor.

One of the reasons Bridgeway came to market with this Portfolio two years ago
was to provide an outlet for investors who wanted to invest in a "tamer"
Bridgeway product. Our ultra-small, micro-cap, and aggressive growth portfolios
all indicate a higher level of risk. As measured by the severity of last year's
market correction, we succeeded. The Ultra-Large 35 Index had a smaller decline
than each of the other portfolios did. Only the Social Responsibility Portfolio
fell a fraction of a percent less.

However, this Portfolio has appreciated so far so fast, that I wonder about the
current valuations of some of our companies. One measure of "price
reasonableness" is the ratio of price to earnings per share. With a
price-to-earnings ratio of 39 compared to the S&P 500 of 36 and the Bridgeway
Ultra-Small Index Portfolio of only 15, I wonder how "safe" our Portfolio really
would be in a significant sudden or extended bear market. As much as I like this
Portfolio, it is only prudent that I call your attention to the unusually high
valuations of our companies by historical standards. Does this mean you should
sell stocks and put your long-term money in a money market fund or under the
mattress? If you are committed to stocks for the long-term like I am, I would
propose that the answer is "no." But you should also be prepared for a "bumpy
road" (translate: a market correction) of a greater magnitude than we have
experienced in the last decade.

OK, I've said my peace. As much as it may sound like it, I can't possibly know
the specifics of your investment situation, so I can't, shouldn't, and won't
give you advice.

Bridgeway Fund Turns 5!

The Worst Thing That Happened in Fiscal Year 1999

TRANSLATION: This is the section in which I annually reflect on the worst thing
that happened at Bridgeway. The worst thing in 1999 was my holding on to some
beaten-up ultra-small stocks too long. Although several Bridgeway portfolios
felt the effects (certainly not this one), it cost our Ultra-Small Company
Portfolio shareholders on the order of seven and a half percentage points in the
middle of the worst ultra-small downturn since 1974. It cost my personal
retirement money about five percentage points. A steep market correction is not
the time to make such mistakes. Although I believe that in the long-term there
is a strong possibility that ultra-small stocks will outperform large stocks,
sifting out the under-performing ones is essential.

4
<PAGE> 188

How Can We Do It Better? - Disclosure of Manager Pay and Fund Ownership

TRANSLATION: This is a periodic section highlighting a management strategy
Bridgeway is using to improve our performance, operations or communications.
"Better" refers to our own history and/or the status of issues in our industry.
This time the subject is industry disclosure of executive pay and fund
ownership. I make a good, but not outrageous salary. I invest in our Fund;
however, my current target asset allocation does not include this Portfolio. The
Bridgeway staff and the board of directors work hard to align the financial
incentives of the Adviser with those of Bridgeway shareholders. As an investor
in this passively managed Portfolio, you may not care at all about these issues,
as long as our expense ratio continues to be the lowest of all retail funds. If
so, you may want to skip this section.

Wall Street Journal, 3/18/98

5
<PAGE> 189

Scott Cooley, Morningstar.net, 5/21/98

And recently a somewhat dissenting view:

Gregg Wolper, Morningstar.net, 5/21/98

Bridgeway is not afraid to break new ground in the industry. We were the first
fund company to provide shareholders with personalized performance numbers. We
were the first to close a portfolio at what is a laughably low level by industry
standards because we felt it was in shareholders' best interests. We have walked
away from legal brokerage commission structures (soft dollar commissions) which
would have taken money right out of shareholders' pockets and put it into the
Adviser's. We are not afraid to prohibit Bridgeway portfolio managers from
investing in a security that a Bridgeway portfolio might also own. (We were not
the first, but we are in a tiny minority.) Thus, Bridgeway Fund is my only
outlet for domestic stock market investing.

6
<PAGE> 190

I want to answer some potential questions about the table and articles above.

Does the Fund pay the Portfolio Managers' compensation?

How is the Portfolio Manager's compensation tied to Bridgeway Fund's
performance?

The second and more direct way that my compensation is tied to my performance is
through my salary. Salaries for all full-time Bridgeway employees, including
myself, have a component tied to profitability of the Adviser and a component
tied to personal performance. The profitability of the Adviser is a function of
portfolio performance through the performance-based fee. (You can imagine that
the Bridgeway staff is quite interested in how well I do my job - besides the
fact that each and every one of them is also a shareholder in one or more
Bridgeway portfolios.) My personal performance is a function of specific goals,
which are integrity (10%), investment performance (50%), efficiency (10%),
service (20%), and asset growth (10%). The investment performance of our
portfolios thus comprises half of the evaluation score that determines my
salary.

There is a lot of variability in your compensation from year to year. Why is
this?

In the first years of Bridgeway, before the Adviser was making a profit for
itself, I contributed capital to help cover expenses. There was no reason to
draw a salary. I began drawing a salary as our cash flow allowed. Last year I
kept my salary low because 1) the Adviser profits were lower than anticipated
[we endured a twenty-year "small-stock storm" in the portfolio with the most
assets] and 2) I wanted to meet federal requirements to roll my IRA into a Roth
IRA.

Recent articles indicate that the median mutual fund manager total cash
compensation is $274,500. Couldn't you make more working at another fund
company?

Yes, currently that is true, but I can't imagine having nearly as much fun, joy
or input. There are several reasons my salary is lower. First, Bridgeway's asset
base is much smaller than the average fund. Second, after our expense ratio, we
still trail our market benchmark in two of our actively managed portfolios, so
our fees and my salary are commensurately lower. Third, by Bridgeway policy, no
employee's compensation can be more than seven times that of the lowest paid
employee. This isn't a constraining factor yet, but it will be before I reach
the industry average. This policy is important to our company's culture and
business strategy. The ratio of the highest to lowest paid employees among the
largest U.S. companies has grown from 44 to 1 in 1965 to 326 to 1 in 1997. And
while I'm not

7
<PAGE> 191

proposing that 7 to 1 should be a standard across corporate America, I do think
executive salaries have gotten out of hand.

If Bridgeway profits take off, won't you just be taking big distributions,
making your salary number irrelevant?

You can only invest in the stock market through Bridgeway Fund. How much of each
Portfolio do you own and why?

Second, since I am disciplined in ignoring short-term fluctuations, I seek out
asset classes and diversifying stock picking models with higher short-term
volatility coupled with historically higher average annual return. I avoid
investments that use leverage to gain additional stock market exposure. This is
how you really get in trouble in a major correction. Over the last fifteen years
my strategy has worked very well. It would not work as well in an extended
recession, but I don't anticipate recessions that last twenty years, or even
ten. Although, of course, theoretically they could.

8
<PAGE> 192

Total Returns of Other Bridgeway Portfolios

<TABLE>
<CAPTION>
8/5/94 to 1/1/99 to Avg. Ann. Avg. Ann. Avg. Ann.
12/31/94 1995 1996 1997 1998 6/30/99 Since 8/94 Since 7/97 Since 6/98
-------- ---- ---- ---- ---- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aggressive Growth 8.8 27.1 32.2 18.3 19.3 25.5 27.1 23.4 33.4
Ultra-Small Company (2.8) 39.8 29.7 38.0 (13.1) 1.4 16.9 (5.1) (14.5)
Social Responsibility 1.5 30.3 16.2 27.5 37.8 11.3 25.2 28.7 26.2
Ultra-Small Index (1.8) 1.4 (0.4) (12.8)
Ultra-Large 35 Index 39.1 14.1 27.4 30.3
Micro-Cap Limited 7.6* 18.6 27.6

S&P 500 Index 1.7 37.5 23.0 33.4 28.9 12.1 27.6 22.7 22.8
Russell 2000 Index 3.2 28.3 16.5 22.4 (2.6) 9.3 15.3 6.7 1.5
CRSP "10" Index (0.8) 30.3 16.9 22.0 (10.8) 13.1 13.5 3.7 (4.1)
CRSP "9" Index (8.1)* 12.5 3.5
</TABLE>

*Includes the period 7/1/99 - 12/31/99 only

Bridgeway Formalizes Expense Limitations

At the August 18 meeting of the Fund's Board of Directors, the directors voted
unanimously to amend the management contract with the Adviser (Bridgeway Capital
Management) to include the 0.15% expense limitation in the body of the contract.
The expense reimbursement was previously an "undertaking" of the Adviser outside
of the management contract. Its inclusion in the contract means that the expense
limitation cannot be increased in the future without a vote of shareholders.
Since it was never our intention to raise the expense limitation, both the Fund
and the Adviser were happy to add this language to the contract. This change
will be effective in the contract and incorporated in our new prospectus dated
October 31, 1999.

Year 2000 Preparedness

TRANSLATION: Operationally, we consider ourselves ready. Investment-wise, we're
ignoring it. This is a conscious, reasonable, and intentional decision on our
part.

9
<PAGE> 193

disciplined way. We feel there is just as high a risk from being out of the
market for a period as there is exposing our Portfolio to a Y2K-related market
decline.

Conclusion

Sincerely,

/s/ JOHN MONTGOMERY

John Montgomery

10
<PAGE> 194
BRIDGEWAY FUND, INC.
ULTRA-LARGE 35 INDEX PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS
Showing percentage of total net assets
June 30, 1999

<TABLE>
<CAPTION>
Industry Company Shares Value
-------- ------- ------ -----
<S> <C> <C> <C>
Common Stock - 99.9%
Auto Parts - 0.4%
Delphi Automotive Systems
Corporation 1,002 $ 18,537

Automobiles - 4.3%
Ford Motor Company 1,787 102,306
General Motors Corporation 1,434 94,644
----------
196,950
Banking - 5.0%
BankAmerica Corporation 1,470 107,769
Citigroup Inc. 2,512 119,296
----------
227,065
Beverages - 2.1%
The Coca-Cola Company 1,538 95,356

Chemicals - 2.5%
E.I. du Pont de Nemours and
Company 1,634 111,521

Cosmetics & Toiletries - 2.0%
Gillette Company 2,194 89,954

Data Processing - Hardware - 9.0%
Cisco Systems, Inc. * 1,602 103,029
Dell Computer Corporation * 3,290 121,730
International Business Machines
Corporation 1,420 183,890
----------
408,649
Data Processing - Software & Services - 7.1%
America Online, Inc. * 928 102,544
Microsoft Corporation * 1,450 130,772
Oracle Corporation * 2,412 89,546
----------
322,862
Drugs-Generic and OTC - 11.3%
Bristol-Meyers Squibb Company 1,779 125,308
Eli Lilly and Company 1,671 119,685
Merck & Company, Inc. 2,086 153,582
Pfizer Inc. 1,026 111,834
----------
510,409
Electronics/Electric - 8.0%
General Electric Company 889 99,457
Intel Corporation 2,114 125,783
Motorola, Inc. 1,442 136,449
----------
361,689
Finance - 2.5%
Federal National Mtg. Assn 1,670 113,978

Food Serving - 2.2%
McDonald's Corporation 2,454 100,921

Household Products - 2.6%
The Proctor & Gamble Company 1,290 115,133

Insurance - 3.4%
American International
Group, Inc. 1,317 154,418

Leisure-Amusement - 4.8%
The Walt Disney Company 3,925 119,713
Time Warner Inc. 1,360 98,770
----------
218,483
Medical Equipment/Supplies - 3.2%
Johnson & Johnson 1,456 142,688

Oil & Gas - 6.5%
Chevron Corporation 1,572 149,438
Exxon Corporation 973 75,043
Mobil Corporation 696 68,730
----------
293,211
Retail Stores - 5.7%
The Home Depot, Inc. 1,497 96,463
Wal-Mart Stores, Inc. 3,324 160,383
----------
256,846
Specialty Instruments - 3.1%
Hewlett-Packard Company 1,398 140,499

Telecommunications - 14.2%
AT&T Corporation 2,515 140,368
Bell Atlantic Corporation 1,729 113,033
GTE Corporation 1,321 99,736
Lucent Technologies Inc. 1,498 101,021
MCI WORLDCOM, Inc. * 1,002 86,235
SBC Communications, Inc. 1,804 104,632
----------
645,025
==========

Total Common Stock (Identified Cost $3,826,412) $4,524,194
==========

Total Investments - 99.9% $4,524,194

Other Assets and Liabilities, net - 0.1% 4,238
==========

Total Net Assets - 100.0% $4,528,432
==========
</TABLE>

* Non-income producing security as no dividends were paid during the period from
July 1, 1998 to June 30, 1999.

** The aggregate identified cost on a tax basis is $3,839,058. Gross unrealized
appreciation and depreciation were $742,818 and $45,036, respectively, or net
unrealized appreciation of $697,782.

See accompanying notes to financial statements.

<PAGE> 195

BRIDGEWAY FUND, INC. - ULTRA-LARGE 35 INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 1999

<TABLE>
<S> <C>
ASSETS:
Investments at value (cost - $3,826,412) $4,524,194
Cash 23,166
Receivable for interest 18
Receivable for dividends 2,134
Receivable from adviser 821
Prepaid expenses 478
Deferred organization costs 2,792
----------
Total assets 4,553,603
----------

LIABILITIES:
Payable for investments purchased 22,366
Payable for management fee 10
Payable for organization costs 2,795
----------
Total liabilities 25,171
----------
NET ASSETS (572,436 SHARES OUTSTANDING) $4,528,432
==========
Net asset value, offering and redemption price per share ($4,528,432 / 572,436) $7.91
==========

NET ASSETS REPRESENT:
Paid-in capital $3,869,621
Undistributed net investment income 18,653
Net realized loss on investments (57,624)
Net unrealized appreciation of investments 697,782
----------
NET ASSETS $4,528,432
==========
</TABLE>

BRIDGEWAY FUND, INC. - ULTRA-LARGE 35 INDEX PORTFOLIO
STATEMENT OF OPERATIONS
For the year ended June 30, 1999

<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $26,193
Interest 348
--------
Total income 26,541

EXPENSES:
Management fees 1,754
Accounting fees 8,160
Audit fees 5,201
Custody 1,347
Amortization of organization costs 905
Insurance 47
Legal 345
Registration fees 1,093
Directors fees 794
--------
Total expenses 19,646
Less fees waived (9,914)
Less expenses reimbursed (6,444)
--------
Net expenses 3,288
--------

NET INVESTMENT INCOME 23,253
--------

NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized loss on investments (56,739)
Net change in unrealized appreciation 655,872
--------
Net realized and unrealized gain 599,133
--------

NET INCREASE IN ASSETS RESULTING FROM OPERATIONS $622,386
========
</TABLE>

See accompanying notes to financial statements.

<PAGE> 196

BRIDGEWAY FUND, INC. - ULTRA-LARGE 35 INDEX PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
Year ended July 31, 1997* to
INCREASE (DECREASE) IN NET ASSETS: June 30, 1999 June 30, 1998
OPERATIONS:
<S> <C> <C>
Net investment income $ 23,253 $ 1,941
Net realized loss on investments (56,739) (885)
Net change in unrealized depreciation 655,872 41,910
----------- -----------
Net increase resulting from operations 622,386 42,966
----------- -----------
Distributions to shareholders:
From net investment income (6,541) 0
From realized gains on investments 0 0
----------- -----------
Total distributions to shareholders (6,541) 0
FUND SHARE TRANSACTIONS:
Proceeds from sale of shares 4,586,906 410,146
Reinvestment of dividends 6,278 0
Cost of shares redeemed (1,066,968) (66,741)
----------- -----------
Net increase from Fund share transactions 3,526,216 343,405
----------- -----------
Net increase in net assets 4,142,061 386,371
NET ASSETS:
Beginning of period 386,371 0
----------- -----------
End of period (including undistributed net investment
income of $18,653 and $1,941, respectively) $ 4,528,432 $ 386,371
=========== ===========

Number of Fund shares:
Sold 663,522 75,335
Issued on dividends reinvested 1,068 0
Redeemed (155,521) (11,968)
----------- -----------
Net increase 509,069 63,367
Outstanding at beginning of period 63,367 0
----------- -----------
Outstanding at end of period 572,436 63,367
=========== ===========
</TABLE>

BRIDGEWAY FUND, INC. - ULTRA-LARGE 35 INDEX PORTFOLIO
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the period)

<TABLE>
<CAPTION>
Year ended July 31, 1997* to
June 30, 1999 June 30, 1998
------------- -----------------
<S> <C> <C>
PER SHARE DATA
Net asset value, beginning of period $ 6.10 $ 5.00
------------- -----------
Income (loss) from investment operations:
Net investment income 0.07 0.07
Net realized and unrealized gain 1.77 1.03
------------- -----------
Total from investment operations 1.84 1.10
------------- -----------
Less distributions to shareholders:
Net investment income (0.03) 0.00
Net realized gains 0.00 0.00
------------- -----------
Total distributions (0.03) 0.00
------------- -----------
Net asset value, end of period $ 7.91 $ 6.10
============= ===========

TOTAL RETURN [1] 30.3% 22.0%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period $ 4,528,432 $ 386,371
Ratios to average net assets: [2]
Expenses after waivers and reimbursements 0.15% 0.15%
Expenses before waivers and reimbursements 0.90% 9.73%
Net investment income after waivers and reimbursements 1.06% 1.47%

Portfolio turnover rate [2] 16.6% 64.3%
</TABLE>

[1] Not annualized.
[2] Annualized.
* July 31, 1997 commencement of operations

See accompanying notes to financial statements.

<PAGE> 197

BRIDGEWAY FUND, INC.
ULTRA-LARGE 35 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS

1. Organization:

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

Federal Income Taxes

Distributions to Shareholders

Distributions to shareholders are recorded when declared. The Fund
distributes net realized capital gains, if any, to its shareholders at
least annually, if not offset by capital loss carryovers. Distributions
of net investment income and realized short-term capital gains, if any,
are taxable as ordinary income to shareholders. 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.

Deferred Organization Costs

Deferred organization costs are amortized on a straight-line basis over
five years.

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.

<PAGE> 198

BRIDGEWAY FUND, INC.
ULTRA-LARGE 35 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS, Continued

2. Significant Accounting Policies, Continued:

Risks and Uncertainties

12b-1 Plan

Other

Assets in the Ultra-Large 35 Index Portfolio are very low, and may
remain so in the immediate future. Because commission cost per trade is
unacceptably high as a percentage of assets, the Adviser reimburses the
Portfolio for any commissions above one cent/share. The Adviser expects
to continue this practice until portfolio net assets reach at least $10
million.

3. Management Contract:

The Ultra-Large 35 Index Portfolio pays a flat 0.08% annual management
fee, computed daily and payable monthly, subject to a maximum expense
ratio of 0.15%.

4. Related Party Transactions:

One director of the Fund, John Montgomery, is an owner and director of
the Adviser. Under the Investment Company Act of 1940 definitions, he
is considered to be "affiliated" and "interested." Compensation of Mr.
Montgomery is borne by the Adviser rather than the Fund. The other
officers 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.

The Adviser has agreed to reimburse the Ultra-Large 35 Portfolio for
any operating expenses above 0.15%. To achieve this expense level the
Adviser has waived both the management fees and accounting fees for the
year ended June 30, 1999. The Adviser expects to continue this
voluntary level of reimbursement, for the foreseeable future.

Payable for organization costs is payable to the Adviser.

5. 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.

<PAGE> 199

BRIDGEWAY FUND, INC.
ULTRA-LARGE 35 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS, Continued

6. Cost, Purchases and Sales of Investment Securities:

Investments have the same cost for tax and financial statement
purposes. Aggregate purchases and sales of investment securities, other
than cash equivalents were $3,915,165 and $363,144, respectively for
the year ended June 30, 1999.

7. Federal Income Taxes:

During the year ended June 30, 1999, the Fund paid a dividend from net
investment income of $0.0303 per share to shareholders of record. The
dividend qualified for the dividends received deduction of corporate
shareholders.

At June 30, 1999 the fund had $885 and $25,756 in capital loss
carryforwards for federal income tax purposes expiring June 30, 2006
and June 30, 2007, respectively. The Fund incurred and elected to defer
post-October 31 net capital losses of $18,352 to the year ended June
30, 2000.

<PAGE> 200

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of Bridgeway Fund, Inc.
and Shareholders of the Ultra-Large 35 Index Portfolio:

In our opinion, the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, and the related statements of operations
and changes in net assets and financial highlights present fairly, in all
material respects, the financial position of the Ultra-Large 35 Index Portfolio
(one of the portfolios constituting Bridgeway Fund, Inc) at June 30, 1999, the
results of its operations for the year then ended, the changes in its net assets
and the financial highlights for the year then ended and for the period from
July 31, 1997 (commencement of operations) to June 30, 1998, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at June 30, 1999 by correspondence with the custodian
and broker, provides a reasonable basis for the opinion expressed above.

/s/ PRICEWATERHOUSE COOPERS, LLP

Houston, Texas
August 23, 1999

<PAGE> 201

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant has caused this Registration Statement on
Form N-1A to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Houston, and the State of Texas on the 18th day of
August, 1999.

Bridgeway Fund, Inc.
(Registrant)

By /s/ JOHN N.R. MONTGOMERY
---------------------------
John N.R. Montgomery
President

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form N-1A has been signed below by the following persons in the
capacities and on the date indicated.

- - ------------------------------------- ---------------
Miles D. Harper, III, Director Date

- - ------------------------------------- ---------------
Karen S. Gerstner, Director Date

/s/ JOHN N.R. MONTGOMERY 8/27/99
- - ------------------------------------- ---------------
John N.R. Montgomery, Director Date

<PAGE> 202
EXHIBIT INDEX

(d) Investment Advisory Contracts

1 - Management Contract dated August 18, 1999, between
Bridgeway Fund, Inc and Bridgeway Capital Management, Inc.

(i) Legal Opinion

1 - Opinion of James H. Ellis

(j) Other Opinions

1 - Consent of PricewaterhouseCoopers LLP

<PAGE> 1

Contract extended to 6/30/2000
By board action on 4/28/99
Amended by the board on 8/18/99

MANAGEMENT CONTRACT

AGREEMENT, made this 26th day of May, 1994 as amended on this 4th day
of September, 1996 by and between Bridgeway Fund, Inc., a Maryland corporation
(hereinafter called the "Fund"), and Bridgeway Capital Management, Inc., a
Texas corporation (hereinafter sometimes called the "Adviser").

WITNESSETH:

WHEREAS the Fund and the Adviser wish to enter into an agreement
setting forth the terms on which the Adviser will perform certain services for
the Fund;

NOW THEREFORE, in consideration of the premises and the covenants
contained hereinafter, the Fund and the Adviser agree as follows:

1. The Fund hereby employs the Adviser to manage the investment and
reinvestment of the assets of the 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, and accounting
personnel) for managing the affairs and investments and keeping the Fund's
records and shall arrange, if desired by the Fund, for members of the Adviser's
organization or its affiliates to serve without salaries from the Fund as
officers or agents of the Fund. The Adviser assumes and shall pay or reimburse
the Fund for: (1) the compensation (if any) of the directors of the Fund who
are interested persons of the Adviser, and the compensation of the officers of
the Fund as such (with the exception of the Chief Financial Officer, Accounting
Officer or Treasurer), and (2) all expenses incurred by the Adviser or by the
Fund in connection with the management of the investment and reinvestment of
the assets of the Fund and the administration of the affairs of the Fund, other
than those specifically assumed by the Fund herein.

Except as otherwise expressly provided above, the Fund assumes and
shall pay all expenses of the Fund, including, without limitation: (1) the
charges and expenses of any custodian or depository appointed by the Fund for
the safekeeping of its cash, securities and other property, (2) the charges and
expenses of bookkeeping personnel, auditors, and accountants, computer services
and record keeping, (3) the charges and expenses of any transfer agents and
registrars appointed by the Fund, (4) brokers' commissions and issue and
transfer taxes chargeable to the Fund in connection with securities
transactions to which the Fund is a party, (5) all taxes and corporate fees
payable by the Fund to federal, state or other government agencies, (6) the
cost of stock certificates (if any) representing shares of the Fund, (7) fees
and expenses involved in registering and maintaining registrations of the Fund
and of its shares with the Securities and Exchange Commission and qualifying
its shares under state or other securities laws, including the preparation and
printing of prospectuses used for these purposes and for shareholders of the
Fund, (8) all expenses of shareholders' and directors' meetings and of
preparing and printing reports to shareholders, (9) charges and expenses of
legal counsel for the Fund in connection with legal matters relating to the
Fund, including without limitation, legal services rendered in connection with
the Fund's corporate existence,

<PAGE> 2

corporate and financial structure and relations with its shareholders,
registrations and qualifications of securities under federal, state and other
laws, issues of securities and expenses which the Fund has herein assumed, (10)
compensation of directors who are not interested persons of the Adviser, (11)
interest expense, (12) insurance expense, and (13) association membership dues.

The services of the Adviser to the Fund hereunder are not to be deemed
exclusive, and the Adviser shall be free to render similar services to others
so long as its services hereunder be not impaired thereby.

3. As compensation for its services rendered and the charges and
expenses assumed and to be paid by the Adviser as described above, pays the
Adviser a base fee computed and payable on or promptly after the last market
day of each month at the following annual rate:

.9% of the value of the Portfolio's average daily net assets during
such month up to $250,000,000;
.875% of the next $250,000,000 of such assets; and
.85% of such assets over $500,000,000,

except that the fee for the Ultra-Small Company Portfolio during the period
that the Portfolio's net assets range from $27,500,000 to $55,000,000 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 base fee for the Ultra-Small Company Portfolio will not be
adjusted for performance. The Aggressive Growth and Social Responsibility
Portfolio base fee described above will be adjusted each Quarterly Period (as
defined below) by adding to or subtracting from such rate, when appropriate,
the applicable performance adjustment rate percentage as described below. The
resulting advisory fee rate will then be applied to the average daily net asset
value of the Fund for the succeeding quarterly period. The advisory fee will be
paid monthly and will be one-twelfth (1/12th) of the resulting dollar figure.

The performance adjustment rate shall vary with the Fund's performance
as compared to the performance of the Standard & Poor's 500 Composite Stock
Price Index with dividends reinvested (hereinafter "Index" or "S & P 500
Index") and will range from -.7% to +.7%; the performance rate adjustment will
be calculated at 4.67% of the difference between the performance of the Fund
and that of the Index, except that there will be no performance adjustment if
the difference between the Fund performance and the Index performance is less
than or equal to 2%. The graph and table in the Prospectus (see "Management of
the Fund") illustrate the relationship between the advisory fee and the fund
performance relative to the Index.

The performance period shall consist of the most recent five year
period ending on the last day of the quarter (March, June, September, and
December) that the New York Stock Exchange was open for trading. For example,
on February 15, 2000, the relevant five year period would be from Friday,
December 30, 1994 through Friday, December 31, 1999.

The performance of the Index will be the five year percentage increase
(or decrease) in the capitalization weighted S & P 500 Index with dividends
reinvested. The Fund performance will be the percentage increase (or decrease)
of the portfolio net asset value per share over the performance period and will
be calculated as the sum of: 1) the change in the portfolio unit value during
such period, 2) the unit value of portfolio distributions from income or
capital gains (long or short term) having an ex-dividend date occurring within
the performance period and assumed to have been reinvested at the net asset
value on ex-

2
<PAGE> 3

date, and 3) the unit value of capital gains taxes paid or accrued during the
performance period of undistributed realized capital gains, if any. Thus, the
Fund performance will be in accordance with SEC standardized total return
formula.

The adjustment to the Basic Advisory Fee will not be cumulative. An
increased fee will result even though the performance of the Fund over some
period of time shorter than the Performance Period has been behind that of the
Index and, conversely, a reduction in the Basic Advisory Fee will be made for a
month even though the performance of the Fund over some period of time shorter
than the performance Period has been ahead of that of the Index.

As indicated above, the Fund's expenses (including the monthly Basic
Advisory fee) will be accrued daily. The performance adjustment for each
performance fee period will be computed monthly and accrued daily in the
subsequent monthly period and taken into account in computing the daily net
asset value of a Fund Portfolio's share. However, the expenses in excess of any
maximum expense limitation that is assumed by the Fund's Adviser 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 April 30, 1995, the performance rate
adjustment will not be operative. The advisory fee payable will be the
base fee only.

(b) From April 30, 1995 through September 30, 1999, the performance
rate adjustment fee will be calculated based upon a comparison of the
investment performance of each Portfolio and the Index over the number
of quarters that have elapsed since the Fund began operations (August 5,
1994). 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.

4. The Fund shall cause its books and accounts to be audited at least
once each year by a reputable, independent public accountant or organization of
public accountants who shall render a report to the Fund.

5. Subject to and in accordance with the Articles of Incorporation of
the Fund and of the Certificate of Incorporation of the Adviser, respectively,
it is understood that directors, officers, agents and stockholders of the Fund
are or may be interested in the Adviser (or any successor thereof) as
directors, officers or stockholders, or otherwise, that directors, officers,
agents and stockholders of the Adviser are or may be interested in the Fund as
directors, officers, stockholders or otherwise, that the Adviser (or any such
successor) is or may be interested in the Fund as stockholder or otherwise and
that the effect of any such adverse interests shall be governed by said
Articles of Incorporation and Certificate of Incorporation, respectively.

6. This agreement shall continue in effect until June 30, 1997 and
thereafter from year to year if its continuance after said date is specifically
approved on or before said date and at least annually thereafter by vote of a
majority of the outstanding voting securities of the Fund or by the Board or
Directors of the Fund, and in addition thereto by a majority of the Directors
of the Fund who are not parties to the agreement or interested persons of the
Adviser or affiliated with any such party except as directors of the Fund,
provided, however, that: (1) this agreement may at any time be terminated
without the payment of any penalty either by vote of the Board of Directors of
the Fund or by vote of a majority of the outstanding voting securities of the
Fund, on sixty days' written notice to the Adviser, (2) this agreement shall
immediately terminate in the event of its assignment (within the meaning of the
federal Investment Company Act of 1940), and (3) this agreement may be
terminated by the Adviser on ninety days' written notice to the Fund. Any
notice under

3
<PAGE> 4

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.

The contract was amended by the Board of Directors on August 18, 1999 without a
shareholder vote, relying on no-action positions cited by the SEC staff in
reply to the Adviser's no-action request to read :

The Adviser will reimburse expenses, if necessary, to ensure expense ratios do
not exceed the following fiscal year expense ratios:

<TABLE>
<S> <C>
Ultra-Small Company 2.0%
------------------------------
Aggressive Growth 2.0%
------------------------------
Social Responaibility* 1.5%
------------------------------
</TABLE>

*For the Social Responsibility only, if the performance adjustment
portion of the management fee is positive, then the expense ratio will be
reimbursed to the level of 1.5% plus the performance adjustment up to a maximum
expense ratio of 2.0%.

IN WITNESS WHEREOF the parties have hereto executed this agreement on
the day and year first above written.

BRIDGEWAY FUND, INC.

By: /s/ JOHN MONTGOMERY
-----------------------
President

BRIDGEWAY CAPITAL MANAGEMENT, INC.

By: /s/ JOHN MONTGOMERY
-----------------------
President

<PAGE> 5

Contract extended to 6/30/2000
By board action on 4/28/99
Amended by the board on 3/18/99

MANAGEMENT CONTRACT

AGREEMENT, made this 26 day of May, 1997 by and between Bridgeway
Fund, Inc., a Maryland corporation (hereinafter called the "Fund"), and
Bridgeway Capital Management, Inc., a Texas corporation (hereinafter sometimes
called the "Adviser").

WITNESSETH:

WHEREAS the Fund and the Adviser wish to enter into an agreement
setting forth the terms on which the Adviser will perform certain services for
the Fund;

NOW THEREFORE, in consideration of the premises and the covenants
contained hereinafter, the Fund and the Adviser agree as follows:

1. The Fund hereby employs the Adviser to manage the investment and
reinvestment of the assets of the ULTRA-SMALL INDEX PORTFOLIO and the
ULTRA-LARGE 35 INDEX PORTFOLIO and to administer its affairs, subject to the
supervision of the Board of Directors of the Fund, for the period and on the
terms in this agreement set forth. The Adviser hereby accepts such employment
and agrees during such period, at its own expense, to render the services and
to assume the obligations herein set forth, for the compensation herein
provided. The Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Fund in any way or
otherwise be deemed as agent of the Fund.

2. The Adviser, at its own expense, shall furnish to the Fund office
space in the offices of the Adviser or in such other place as may be agreed
upon from time to time, and all necessary office facilities, equipment and
personnel (with the exception of bookkeeping, auditing, state registration, and
accounting personnel) for managing the affairs and investments and keeping the
Fund's records and shall arrange, if desired by the Fund, for members of the
Adviser's organization or its affiliates to serve without salaries from the
Fund as officers or agents of the Fund. The Adviser assumes and shall pay or
reimburse the Fund for: (1) the compensation (if any) of the directors of the
Fund who are interested persons of the Adviser, and the compensation of the
officers of the Fund as such (with the exception of the Chief Financial
Officer, Accounting Officer or Treasurer), and (2) all expenses incurred by the
Adviser or by the Fund in connection with the management of the investment and
reinvestment of the assets of the Fund and the administration of the affairs of
the Fund, other than those specifically assumed by the Fund herein.

<PAGE> 6

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.

.5% of the value of the Ultra-Small Index Portfolio's average
daily net assets and
.08% of the value of the Ultra-Large 35 Index Portfolio.

For purposes of calculating such fee, average daily net assets shall
be computed by adding the total asset values less liabilities of each Portfolio
as computed by the Adviser each day (during the month and dividing the
resulting total by the number of days in the month). Expenses and fees of each
Portfolio, including the advisory fee, will be accrued daily and taken into
account in determining net asset value. For any period less than a full month
during which this agreement is in effect, the fee shall be prorated according
to the proportion which such period bears to a full month.

2
<PAGE> 7

The Adviser will reimburse expenses, if necessary, to ensure expense ratios do
not exceed the following fiscal year expense ratios:

<TABLE>
<S> <C>
Ultra-Small Index Portfolio 0.75%
----------------------------------------
Ultra-Large 35 Index Portfolio 0.15%
----------------------------------------
</TABLE>

IN WITNESS WHEREOF the parties have hereto executed this agreement on
the day and year first above written.

BRIDGEWAY FUND, INC.

By: /s/ JOHN MONTGOMERY
-----------------------
President

BRIDGEWAY CAPITAL MANAGEMENT, INC.

By: /s/ JOHN MONTGOMERY
-----------------------
President

3
<PAGE> 8

Contract extended to 6/30/2000
By board action on 4/28/99

MANAGEMENT CONTRACT

AGREEMENT, made this 3rd day of June, 1998 by and 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, 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

<PAGE> 9

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.

The services of the Adviser to the Fund hereunder are not to be deemed
exclusive, and the Adviser shall be free to render similar services to others so
long as its services hereunder be not impaired thereby.

3. As compensation for its services rendered and the charges and
expenses assumed and to be paid by the Adviser as described above, pays the
Adviser 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 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.

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 Fund'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 2.87% of the difference
between the performance of the Fund and that of the Index, except that there
will be no performance adjustment if the difference between the Fund performance
and the Index performance is less than or equal to 2%. The graph and table in
the Prospectus (see "Management of the Fund") illustrate the relationship
between the advisory fee and the fund performance relative to the Index.

The performance period shall consist of the most recent five year
period ending on the last day of the quarter (March, June, September, and
December) that the New York Stock Exchange was open for trading. For example, on
February 15, 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.

2
<PAGE> 10

The adjustment to the Basic Advisory Fee will not be cumulative. An
increased fee will result even though the performance of the Fund over some
period of time shorter or longer than the Performance Period has been behind
that of the Index and, conversely, a reduction in the basic advisory fee will be
made for a month even though the performance of the Fund over some period of
time shorter or longer than the performance Period has been ahead of that of the
Index.

As indicated above, the Fund's expenses (including the monthly Basic
Advisory fee) will be accrued daily. The performance adjustment for each
performance fee period will be computed monthly and accrued daily in the
subsequent monthly period and taken into account in computing the daily net
asset value of a Fund Portfolio's share. However, the expenses in excess of any
maximum expense limitation that is assumed by the Fund's Adviser 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 April 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 months of the transition period will have a disproportionate effect
on the performance adjustment of the fee.

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.

3
<PAGE> 11

The contract was amended by the Board of Directors on August 18, 1999 without a
shareholder vote, relying on no-action positions cited by the SEC staff in reply
to the Adviser's no-action request to read :

The Adviser will reimburse expenses, if necessary, to ensure expense ratios do
not exceed 1.9% for the fiscal year.

IN WITNESS WHEREOF the parties have hereto executed this agreement on
the day and year first above written.

BRIDGEWAY FUND, INC.

By: /s/ JOHN MONTGOMERY
------------------------
President

BRIDGEWAY CAPITAL MANAGEMENT, INC.

By: /s/ JOHN MONTGOMERY
------------------------
President

<PAGE> 1

[JAMES H. ELLIS LETTERHEAD]

August 25, 1999

Bridgeway Fund, Inc.
5615 Kirby Drive, Suite 518 Re: 33-72416
Houston, Texas 77005-2448 811-8200

Ladies and Gentlemen,

This opinion is being delivered to you in connection with the above
registration statement on Form N-1A under the Securities Act of 1933, as
amended, under which you have registered an indefinite number of shares of
beneficial interest, par value $.001 per share, pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended. In particular, this option relates
to the sale of shares both in the fiscal year ended June 30, 1999 and
prospectively to the shares which may be sold during the fiscal year ending June
30, 2000 (the "shares").

We have made such inquiry of your officers, directors and auditors and have
examined such corporate documents, records and certificates and other documents
and which questions of law as we have deemed necessary for the purposes of this
opinion including the Maryland General Corporation Law. In rendering this
opinion we have relied as to all questions of fact material to this opinion,
upon certificates of public officials and the statements of your officers, and
have assumed, with your approval, that the signatures on all documents examined
by us are genuine, which fact we have not independently verified. I am a member
of the bar of the State of New York, and have not consulted Maryland counsel in
connection with this opinion.

Based upon and subject o the foregoing, we are of the opinion that the
shares were legally and validly issued, fully paid and non-assessable, and that
management fully expects to comply with the

<PAGE> 2
2

federal and state registration requirements regarding shares to be issued during
the Fund's fiscal 2000 year ending June 30th.

We hereby consent to your including this opinion as an Exhibit to in the
forthcoming filing of the Fund's Post Effective Amendment No. 10. In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.

Sincerely Yours,

/s/ JAMES H. ELLIS
James H. Ellis

JHE/ms

<PAGE> 1

CONSENT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of Bridgeway Fund, Inc.:

We consent to the inclusion in Post-Effective Amendment No. 10 to the
Registration Statement of Bridgeway Fund, Inc. on Form N-1A (File No. 33-72416)
of our reports dated August 23, 1999 on our audits of the financial statements
and financial highlights, as applicable for each of the Portfolios included in
Bridgeway Fund, Inc., which reports are included in the Annual Report to
Shareholders for the year ended June 30, 1999 which is included in the
Post-Effective Amendment No. 10 to the Registration Statement. We also consent
to the reference to our firm under the captions "General Information" and
"Independent Accountants" in the Prospectus, Financial Highlights and the
Statement of Additional Information.

/s/ PRICEWATERHOUSECOOPERS LLP

Houston, Texas
August 23, 1999