<PAGE> 1
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.
All six Bridgeway Fund portfolios are represented in the prospectus and the
SAI: the Ultra-Small Company Portfolio, Ultra-Small Index Portfolio, Micro-Cap
Limited Portfolio, Aggressive Growth Portfolio, Social Responsibility
Portfolio, and Ultra-Large 35 Index Portfolio. 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. Bridgeway Fund, Inc. is a Maryland corporation,
incorporated on October 19, 1993. Bridgeway Capital Management, Inc. is a Texas
corporation, incorporated on July 12, 1993.
TABLE OF CONTENTS
Cross-reference
to page in the
Prospectus
Page
Investment Objectives and Policies 2 3, 8, 13, 17, 22, 27
Risk Factors 3 4, 9, 14, 18, 23, 28
Investment Restrictions 5 4, 9, 14, 18, 23, 28
U.S. Government Securities 7 -
Foreign Securities 7 35
New Issues and Closed End Funds 7 -
Management 7 32
The Management Agreement 8 -
Security Selection Process 13 3, 8, 13, 17, 22, 27
Disclaimer-CRSP 13 -
Portfolio Transactions and Brokerage 13 -
Net Asset Value 14 34
Redemption in Kind 14 37
Taxation 15 38
Dividends and Distributions 15 37
Performance Information 15 5, 10, 14, 19, 24, 29
Allocation of Trades to Clients 17 NA
General Information 17 2, 40
Financial Statements 18 -
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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 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
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<PAGE> 3
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.
The Index Portfolios seek to track their respective indexes with a degree of
accuracy resulting in a correlation coefficient between the Portfolio and the
underlying index of at least 0.95. When this standard is not met, the Adviser
will apprise the Board of Directors of proposed actions and timeframes to bring
the Portfolio back into line with the standard.
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, 19998 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 (1926-19987)
<TABLE>
<CAPTION>
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 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
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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 time
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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.
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<PAGE> 6
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.
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<PAGE> 7
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.
17. Invest in securities which would cause the The Ultra-Small Index
Portfolio and Ultra-Large 35 Index Portfolio to violate the Board approved
policy to weight the Portfolio's sector composition within one and one-half
percentage points (of total) of the sector composition of their respective
indexes.
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.
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<PAGE> 8
The directors and officers of the Fund and of the Adviser, their business
address and principal occupations during the past five years are
<TABLE>
<CAPTION>
Position with the
Fund Principal Occupation
<S> <C> <C>
John N. R. Montgomery* President and President of the Fund since 11/93
Director and the Adviser since 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:
<TABLE>
<CAPTION>
Aggregate Pension or Estimated Annual
Compensation from Retirement Benefits Benefits Upon Total Compensation
Fund Accrued Retirement from the Fund
<S> <C> <C> <C> <C>
Name of Director
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
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<PAGE> 9
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 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:
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%
* 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
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<PAGE> 10
$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 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 will 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 will be
calculated as follows during the initial five year period:
From April 30, 1995 through September 30, 1999, the performance rate adjustment
fee will be calculated based upon a comparison of the investment performance of
each Portfolio and the benchmark index over the number of quarters that have
elapsed since the Fund began operations (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-
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<PAGE> 11
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.
For the last three fiscal years ending June 30 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 Waived
Advisory Fee Expense Advisory Accounting
Portfolio By Fiscal Year Per Contract Reimbursement Fees Fee
<S> <C> <C> <C> <C>
Ultra-Small Company
6/30/99 $495,000 $0 $86,675 $0
6/30/98 $495,000 $0 $0 $0
6/30/97 $143,395 $0 $29,727 $0
Ultra-Small Index
6/30/99 $6,753 $8,015 $6,753 $7,861
6/30/98 $5,382 $1,926 $5,382 $3,386
6/30/97 n/a n/a n/a n/a
Aggressive Growth
6/30/99 $14,577 $0 $0 $0
6/30/98 $39,058 $0 $0 $0
6/30/97 $28,802 $0 $18,126 $0
Social Responsibility
6/30/99 $3,966 $0 $3,966 $8,552
6/30/98 $1,950 $5,765 $1,950 $15,219
6/30/97 $1,596 $8,092 $1,596 $9,811
Ultra-Large 35 Index
6/30/99 $1,754 $6,444 $1,754 $8,160
6/30/98 $106 $9,077 $106 $3,442
6/30/97 n/a n/a n/a n/a
Micro-Cap Limited
6/30/99 $99,314 $0 $0 $0
6/30/98 n/a n/a n/a n/a
6/30/97 n/a n/a n/a n/a
</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
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<PAGE> 12
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 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,
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<PAGE> 13
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 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 SECURITY PRICES
Bridgeway Ultra-Small Index Portfolio is not sponsored, sold, promoted, or
endorsed by University of Chicago's Center for Research in Security 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 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.
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<PAGE> 14
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 three fiscal years
ending June 30, the Fund's Portfolios paid brokerage commissions as follows:
Brokerage Commissions Paid
Portfolio 6/30/99 6/30/98 6/30/97
Ultra-Small Company $56,559 $86,896 $39,417
Ultra-Small Index $1,426 $4,078 n/a
Micro-Cap Limited $14,008 n/a n/a
Aggressive Growth $9,779 $9,779 $5,094
Social Responsibility $635 $685 $227
Ultra-Large 35 Index $652 $86 n/a
$83,059 $101,524 $44,738
In the current fiscal year, 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 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
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<PAGE> 15
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.
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
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<PAGE> 16
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.
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
16
<PAGE> 17
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 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
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<PAGE> 18
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.
<TABLE>
<CAPTION>
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>
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 is incorporated here by reference. It can also be
located at the Fund's email address www.bridgewayfund.com.
18
<PAGE> 19
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>
F-1
<PAGE> 20
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>
F-2
<PAGE> 21
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.
F-3
<PAGE> 22
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.
F-4
<PAGE> 23
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.
F-5
<PAGE> 24
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.
F-6
<PAGE> 25
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.
F-7
<PAGE> 26
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.
F-8
<PAGE> 27
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
F-9
<PAGE> 28
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>
F-10
<PAGE> 29
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>
F-11
<PAGE> 30
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.
F-12
<PAGE> 31
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
F-13
<PAGE> 32
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.
F-14
<PAGE> 33
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.
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.
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
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.
F-15
<PAGE> 34
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
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 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:
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 of investment securities other than cash
equivalents were $835,651, and $633,859, respectively for the year ended
June 30, 1999.
F-16
<PAGE> 35
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>
F-17
<PAGE> 36
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
F-18
<PAGE> 37
BRIDGEWAY FUND, INC.
MICRO-CAP LIMITED 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 - 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.
F-19
<PAGE> 38
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.
F-20
<PAGE> 39
BRIDGEWAY FUND, INC. - MICRO-CAP LIMITED PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
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)
<TABLE>
<CAPTION>
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.
F-21
<PAGE> 40
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
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.
F-22
<PAGE> 41
BRIDGEWAY FUND, INC.
MICRO-CAP LIMITED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS, Continued
2. Significant Accounting Policies, Continued:
Use of Estimates in Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, as well as the reported amounts of income and
expenses during the reporting period. Actual results could differ from
those estimates.
Risks and Uncertainties
The Fund 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.
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:
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.
F-23
<PAGE> 42
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.
F-24
<PAGE> 43
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
F-25
<PAGE> 44
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>
F-26
<PAGE> 45
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.
F-27
<PAGE> 46
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.
F-28
<PAGE> 47
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.
F-29
<PAGE> 48
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
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
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, as well as the reported amounts of income and
expenses during the reporting period. Actual results could differ from
those estimates.
Risks and Uncertainties
The Fund provides for various investment options including stocks 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.)
F-30
<PAGE> 49
BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS, Continued
2. Significant Accounting Policies, Continued:
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.
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%.
F-31
<PAGE> 50
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:
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 $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.
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 $ (676)
Undistributed net investment income 47,554
Undistributed net realized gain (46,878)
</TABLE>
F-32
<PAGE> 51
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
F-33
<PAGE> 52
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.
F-34
<PAGE> 53
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.
F-35
<PAGE> 54
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.
F-36
<PAGE> 55
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.
F-37
<PAGE> 56
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
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.
F-38
<PAGE> 57
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>
F-39
<PAGE> 58
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.
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 $(14,729)
Undistributed net investment income 11,194
Undistributed net realized gain 3,535
</TABLE>
F-40
<PAGE> 59
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
F-41
<PAGE> 60
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.
F-42
<PAGE> 61
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.
F-43
<PAGE> 62
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.
F-44
<PAGE> 63
BRIDGEWAY FUND, INC.
ULTRA-LARGE 35 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 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.
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.
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.
F-45
<PAGE> 64
BRIDGEWAY FUND, INC.
ULTRA-LARGE 35 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
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 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.
F-46
<PAGE> 65
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.
F-47
<PAGE> 66
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
F-48
