<PAGE> 1
February 15, 1999
Dear Ultra-Large 35 Index Portfolio Shareholder,The awesome performance
continues! The largest U.S. companies continued to outshine almost every other
asset class in sight in 1998, contributing to a 39.1% gain for our Portfolio.
This performance trounced the S&P 500 Index return of 28.7% and the Dow Jones
Industrial Average return of 18.1%. This year it paid to be not just large, but
ULTRA-large. The Portfolio ranked 14th of 700 growth and income funds and #1 of
598 "large-blend" funds in 1998 according to Morningstar.
Enhancing the sweetness of such outsize returns, our tax efficiency also paid
off in spades in 1998. Portfolio shareholders enjoyed an ultra-small dividend of
just three cents per share, equal to 0.6% of the 1/1/98 net asset value. We have
yet to distribute a capital gain to shareholders. The Portfolio ranked #1 of 43
tax-managed funds in 1998, according to Morningstar, and has the lowest expense
ratio of any retail fund. I believe that this Portfolio is one of the best-kept
secrets in the industry. You won't see bold ads touting our performance in major
financial publications. Bridgeway shareholders save the advertising expenses
most funds pay. We think that eventually more savvy investors like you will do
enough homework to find us.
The following table presents SEC standardized performance for one year and
life-to-date. The graph below presents our cumulative quarterly performance
versus the same benchmarks.
<TABLE>
<CAPTION>
1 Year Life-to-Date
1/1/98 7/31/97 to
to 12/31/98 12/31/98**
----------- ------------
<S> <C> <C>
Ultra-Large 35 Index Portfolio 39.1% 26.2%
S&P 500 Index * 28.7% 21.5%
Bridgeway Ultra-Large 35 Index * 39.2% 26.3%
Lipper Growth and Income Funds * 17.0% 13.0%
</TABLE>
* The S&P 500 Index is an unmanaged index of large companies with dividends
reinvested. The Bridgeway Ultra-Large 35 Index is an index comprised of some of
the very largest, "blue chip" U.S. stocks, excluding tobacco; it is compiled by
the advisor to the Portfolio. The Lipper Growth and Income Funds reflect the
aggregate record of domestic growth and income mutual funds as reported by
Lipper Analytical Services, Inc. Past performance does not guarantee future
returns.
** Life-to-date returns are annualized.
ULTRA-LARGE INDEX GRAPH INFORMATION:
Title: Growth of $10,000 Invested in various Funds and Indexes from
7/31/97 to 12/31/98
Shows the growth of $10,000 in the Bridgeway Ultra-Large 35 Index Portfolio,
the Bridgeway Ultra-Large 35 Index and the S&P 500 Index. As of 12/31/98 the
$10,000 had grown to $13,915 in the Bridgeway Ultra-Large 35 Index Portfolio,
$13,911 in the Bridgeway Ultra-Large 35 Index and $13,187 in the S&P 500 Index.
<PAGE> 2
Explanation of Annual Performance
Translation: It paid to be ultra-large in 1998. That just about says it.
Our concentration in ultra-large companies really does tell the story of our
outperformance in 1998. These companies were the main beneficiaries of a flight
to perceived relative safety (these companies tend not to fall as far in a
downturn) and liquidity (they are easier to buy and sell in large quantities).
Looking at the Portfolio by industry, our slightly greater weighting of
technology stocks (20% of the Portfolio) helped in 1998. The S&P 500 Index holds
about 16% technology, and the Dow Jones Industrial Average holds 9.5%. Five of
the top ten stocks were in technology. The returns of the current 34 active
stocks (BankAmerica combined with NationsBank) follow:
<TABLE>
<CAPTION>
Rank Description Industry % Gain
---- ----------- -------- ------
<S> <C> <C> <C>
1 Cisco Systems, Inc. Data Processing--Hardware and Services 149%
2 Worldcom, Inc. Telecommunications 140%
3 Microsoft Corp. Data Processing--Software 115%
4 Wal Mart Stores, Inc. Retail Stores 105%
5 Oracle Corp. Data Processing--Software 96%
6 Ford Motor Company Automobiles 81%
7 Int'l Business Machines Data Processing--Hardware and Services 78%
8 Intel Corp. Electronics/Electric 70%
9 Pfizer, Inc. Drugs-Generic and OTC 69%
10 McDonalds Corp. Food Serving 64%
11 SBC Communications, Inc. Telecommunications 46%
12 Merck & Company Drugs-Generic and OTC 40%
13 General Electric Electronics/Electric 39%
14 Bristol Myers Squibb Co. Drugs-Generic and OTC 39%
15 American Int'l Group, Inc. Insurance 34%
16 Fannie Mae Finance 32%
17 GTE Corp. Telecommunications 31%
18 Johnson & Johnson Medical equipment/Supplies 28%
19 Bell Atlantic Corp. Telecommunications 26%
20 AT&T Corp. Telecommunications 25%
21 Exxon Corp. Oil & Gas 22%
22 Mobil Corp. Oil & Gas 22%
23 General Motors Corp. Automobiles 20%
24 Procter & Gamble Co. Household Products 16%
25 Hewlett Packard Company Specialty Instruments 12%
26 Pepsico Inc. Beverages 10%
27 Chevron Corp. Oil & Gas 9%
28 Motorola Inc. Electronics/Electric 7%
29 Coca-Cola Company Beverages 2%
30 BankAmerica Corp. Banking 1%
31 Citicorp Banking 0%
32 Gillette Co. Cosmetics & Toiletries (4)%
33 Dupont E.I. De Nemours Co. Chemicals (8)%
34 Walt Disney Company Leisure-Amusement (9)%
</TABLE>
-2-
<PAGE> 3
Within almost any industry group, the larger the stock, the better the return.
Our energy stocks are a good example. In spite of the fact that the price of oil
declined by more than a third in 1998, our three oil stocks returned an average
18%. Most small and mid-size energy companies had double-digit negative returns.
Technology companies had a great year, but mostly the ultra-large ones led the
way.
One factor which held back our performance in 1998 was our significant exposure
to "value" stocks, defined as those in more mature industries, or those growing
at a modest rate. Most of the mutual funds that beat the S&P 500 Index in 1998
were focused on large companies but also had a strong "growth" rather than
"value" orientation. The Ultra-Large 35 Index Portfolio is a "blend" fund,
meaning it holds about equal numbers of each. Statistical measures of value
versus growth indicate that compared to the S&P 500 Index, our Portfolio is very
slightly more on the value side. What we gave up by having more exposure to
mature value-oriented companies, we more than gained back by our ultra-large
orientation.
Top Ten Holdings
Translation: All 35 are top ten! (...at one time or another.)
Shareholders and prospective shareholders occasionally ask for a list of our top
ten holdings. We purposefully weight all 35 companies equally. Each time new
money comes in, we simply add it to the stocks which currently represent the
smallest percentage of the Portfolio. Over time, I expect each stock to average
about 1/35th (2.85%) of Portfolio assets. Two things can cause our weightings to
get out of balance. First, price appreciation will cause a temporary over- or
under-weighting in a stock. Second, our "loss-harvesting" process will cause a
temporary over-weighting or under-weighting in a stock, since we are unable to
purchase it within 31 days of the sale due to "wash-sale" rules of the Internal
Revenue Service. "Loss-harvesting" is a technique we use to avoid capital gains
distributions. We sell individual lots of a stock in order to realize the
capital loss to offset other gains. IRS "wash sale rules" require that in order
to take a capital loss in a security, you may not have purchased the same
security within a 30-day window before the sale, and you may not purchase the
same security within 30 days after the sale. Typically, we buy up to about 4% of
a stock we want to "harvest," then sell some of the most depreciated shares
after 30 days, and then buy them back 31 days later. In spite of a total return
of 39% since inception, we have taken net losses equal to 2% of our portfolio
value. If we have to sell a security due to a spin-off or because a company is
taken over for cash, we will use this capital loss to offset such future gain.
Myth and Fact Translation:
Recent market performance demonstrates the risk of trying to "time the market."
At Bridgeway, we subscribe to the philosophy that time in the market is better
than timing the market. (I don't know who first said this; if you know, please
write me a card. It wasn't me.)
By now you are probably familiar with Bridgeway's "buy and hold" philosophy of
owning stocks for the long term and with our disdain for trying to time the
market. The following quote (I'll call it "the myth") nearly turned by stomach
when I read it in an advertisement for one of the most popular financial
Internet sites:
With the market's recent schizophrenia - swooning one month, soaring the
next - it's become more crucial for investors to be able to stay on top
of events and use the fluctuations to their advantage.
-3-
<PAGE> 4
Presumably by using this service you could bail out before the market fell, and
invest again at the bottom.
Fact: While there were more than five times the number of purchases as sales of
portfolio shares in 1998, almost three-fourths of the sales came in the two
months following the low point on October 8. Those who bailed out missed some of
the best performing weeks at the end of the year. Academic and industry research
indicates that this is not an isolated phenomenon. A significant majority of
people who time the market end up with inferior returns. In a taxable account,
the additional taxes really eat into returns. Wilshire Associates studied the
gap between portfolio returns and shareholder returns from January 1984 through
August 1994 and found that investors' returns were 1.1% less than the average
11.0% return of their funds. I believe a significant part of this
underperformance is due to investors' fear and reaction to short-term news
stories.
First Proposed Changes to the Bridgeway Ultra-Large 35 Index
Translation: Two of our 35 companies are casualties of mergers. In addition to
replacing these, we are proposing: adding four new companies, deleting one, and
putting three in the "dormant" category in which we will not invest new money.
This will help maintain our ultra-large focus, without creating capital gains or
even significant transaction costs.
In accordance with the Fund prospectus in minimizing undesirable turnover,
Bridgeway would not normally reconfigure the Ultra-Large 35 Index after only a
year and a half. Now that a reconfiguration is necessary, we are soliciting your
feedback.
Since Bank of America has merged with NationsBank, and Exxon will soon merge
with Mobil, our original 35 companies will be down to 33. Rather than simply
adding two, I thought this would be a good time, after more than a year and a
half, to look at rebalancing our index to concentrate assets among the current
largest companies. Our primary objectives are 1) to keep an ultra-large company
focus, 2) to ensure reasonable diversification, and 3) to avoid any capital
gains. A list of all current, candidate, and proposed companies appears
following page six. Companies that are candidates for inclusion or exclusion,
along with our recommendation, are in bold type. If you have any feedback on
these proposed changes, please call us at 800-661-3500 x5 before March 20. We
expect to make our final changes effective shortly thereafter. The following
paragraphs of this section highlight some of our recommendations.
Proposed additions. Lucent Technologies and Dell Computer seem to be
straightforward additions, since they rank #13 and #14 in order of current
market capitalization. Eli Lilly (#22), Home Depot (#24), and Time Warner (#38)
are good high ranking, diversifying candidates. Eli Lilly would be the fourth
stock in the pharmaceutical industry, the maximum number we will hold in any one
industry. This stock would bring our healthcare representation closer to that of
other large company indexes. America Online is slightly more problematical.
Apart from price (which we do not consider separately from market
capitalization), my only real concern with America Online is volatility. With a
beta of 1.70, this single stock would increase the portfolio beta, which is
already 1.07*, another two-hundredths. However, it adds some exposure to the
"new economy" of the Internet and may not correlate so closely with the overall
market during the next ten years. Perhaps the best and only reason to include it
is that it is one of the 35 largest U.S. companies. I can't think of a
compelling reason to exclude it.
- --------------------
* So far, the "upside beta" of the Portfolio has been higher than the "downside
beta." Our Portfolio has fallen 5.5% more than the S&P 500 Index in down months.
-4-
<PAGE> 5
Proposed exclusions. Phillip Morris will continue to be excluded as a tobacco
company; we see no need to hold a company in a terminal industry. This strategy
has served the Portfolio's performance very well so far. Since inception, it has
underperformed every other stock in our index except DuPont.
We are proposing to continue to exclude Bellsouth (#26) and American Home
Products (#28) for reasons of diversification. Similarly, we propose excluding
Compaq (#12), to keep our technology exposure from increasing above 22.8%.
Proposed deletions. We are proposing to sell Pepsico (#46), which we can sell
with a capital loss. The beverage industry is still covered by Coca-Cola. Of the
other companies that have fallen from the top 40, we are proposing to continue
to hold DuPont (#43), General Motors (#48), McDonalds (#49), and Chevron (#53)
for reasons of diversification. We would probably sell Chevron, except that,
with the merger of Exxon and Mobil, the energy sector would be less represented
in our Portfolio than in our economy at large (2.8% versus 3.9%). Also, Chevron
will help offset the volatility of some of our new technology holdings.
Dormant companies. You may recall from our prospectus that if a company shrinks
from ultra-large status, but the Portfolio holds appreciated tax lots, the
company may enter a "dormant" category. We invest no new money into these
companies. Assuming assets continue to grow, they would represent a smaller and
smaller percentage of the index over time, without creating a taxable gain.
Associates First Capital, a spin-off of one of our ultra-large companies, has
been our only dormant company. Since it now represents only 0.1% of portfolio
assets, we are willing to sell it at a miniscule gain (which we will offset with
losses for tax purposes). We are proposing three new dormant companies: GTE
(#42), Oracle (#52), and Motorola (#61). The deletion of GTE would offset the
addition of Lucent Technologies in the telecommunications industry. Oracle and
Motorola would partially offset our addition of three technology firms.
The Year 2000 Computer Problem
Translation: Some computers and software (especially older versions) will not
function properly next year because of problems in reading years beginning with
"2000." At Bridgeway, we believe that our systems have very limited exposure and
are operationally ready. However, we have taken action to safeguard our
operations. In addition, we do not plan to sell portfolio companies as we try to
anticipate their readiness for the year 2000.
As January 1 of 2000 approaches, you will hear more and more stories of the
"Y2K" or year two thousand problem. Many companies are spending tremendous
amounts to correct software which reads only two digits for date fields ("99"
instead of "1999"); this can cause serious problems and software failure. Some
shareholders have asked what Bridgeway is doing about it.
We believe our own computers and software are year 2000 "compliant." There are
some advantages in being a smaller and somewhat younger firm. The network of
personal computers we rely on use major brand name components that are also
compliant. We have no mainframes or older hardware, which are more difficult to
convert to year 2000 capability. We have completed testing of our primary
software, all of which is compliant, and we will conduct final tests in March.
The Securities and Exchange Commission requires regulated investment advisors to
have a Y2K plan. An SEC representative conducted an on-site interview in October
to assess our readiness. (They don't give you a grade or make any representation
about readiness, however.) Bridgeway also has a contingency plan. We had the
opportunity in 1998 to (successfully) price our portfolio off-site on an
"emergency" basis. We have contacted all of our vendors and brokers concerning
their compliance, and I am impressed with the efforts made by these companies.
After studying their plans, I am only concerned about one vendor
-5-
<PAGE> 6
that supplies the closing prices of our securities. However, we have several
alternative sources, so I am not worried.
I believe that the two areas of greatest exposure to the Y2K problem are the
phone company and the electric company. Obviously, we are too small to have an
impact on their readiness, but we don't feel it would be a catastrophe even if
Bridgeway were without these utilities for a couple of weeks. We are considering
obtaining a backup source of electricity. Quite frankly, if there are problems
at Bridgeway, it is likely that you will have more important and immediate
problems in other parts of your life. I don't anticipate major problems in early
January 2000, but I am taking the issue very seriously.
The other side of the equation is the companies we own. Should we anticipate a
major market correction? As a passively managed index fund, and for reasons
similar to our disdain of timing the market, we will not time the market impact
of the Y2K problem. We plan to "ride it out," whether it is large or small. It
would be too easy to sell now and miss a great 1999, or sell after prices
already reflect the problem.
Conclusion
As always, I appreciate your feedback. We keep a bulletin board of shareholder
comments and suggestions, which we review at our weekly staff meeting. We take
them very seriously. Please keep your ideas coming.
Sincerely,
/s/ JOHN MONTEGOMERY
John Montegomery
-6-
<PAGE> 7
Proposed Additions and Deletions to Bridgeway Ultra-Large 35 Index
<TABLE>
<CAPTION>
Current
Size New
Rank Index Description Status Recommendation Reason
------- ----- ----------- ------ -------------- ------
<S> <C> <C> <C> <C> <C>
1 1 Microsoft Corp. In
2 2 General Electric In
3 3 Intel Corp. In
4 4 Wal Mart Stores, Inc. In
5 5 Exxon Corp. In
6 6 Merck & Company In
7 7 Pfizer, Inc. In
8 8 Coca-Cola Company In
9 9 Int'l Business Machines In
10 10 Cisco In
11 11 AT&T Corp. In
12 12 MCI Worldcom, Inc. In
13 13 LUCENT TECHNOL. INC. CANDIDATE ADD ULTRA-LARGE
14 14 DELL COMPUTER CANDIDATE ADD ULTRA-LARGE
15 15 Bristol Myers Squibb In
16 16 Citigroup Inc. In
17 17 Procter & Gamble Co. In
18 18 Johnson & Johnson In
19 19 BankAmerica Corp. In
20 20 Amer. Int'l Group, Inc. In
21 21 SBC Commun's, Inc. In
22 Phillip Morris Excluded No action Tobacco
23 22 ELI LILLY & CO. CANDIDATE ADD ULTRA-LARGE
24 23 Bell Atlantic Corp. In
25 24 HOME DEPOT CANDIDATE ADD ULTRA-LARGE
26 Bellsouth Corp. Excluded No action Industry Concentration
27 Schering-Plough Co. Excluded No action Industry Concentration
28 Amer. Home Products Excluded No action Industry Concentration
29 Smithkline Beecham Excluded No action Industry Concentration
30 25 Hewlett Packard Co. In
31 26 Fannie Mae In
32 Compaq Corp. Candidate No action Diversification
33 Mobil Corp. Merger Absorbed by Exxon Absorbed by Exxon
34 27 Walt Disney Company In
35 28 AMERICA ONLINE INC. CANDIDATE ADD ULTRA-LARGE
36 Abbott Laboratories Excluded No action Industry Concentration
37 Ameritech Corporation Excluded No action Industry Concentration
38 29 TIME WARNER, INC. CANDIDATE ADD ULTRA-LARGE
39 30 Ford Motor Co. In No action
40 31 Gillette Co. In No action
42 GTE CORP. IN DORMANT COMPANY LARGER ALTERNATIVE
43 32 DUPONT IN HOLD UNDERWEIGHTED SECTOR
46 PEPSICO INC. IN SELL SMALLER; HOLD COKE
48 33 GENERAL MOTORS IN HOLD UNDERWEIGHTED SECTOR
49 34 MCDONALDS CORP. IN HOLD DIVERSIFICATION
52 ORACLE CORP. IN DORMANT COMPANY SMALLER; ADDING OTHER TECH.
53 35 CHEVRON CORP. IN HOLD UNDERWEIGHTED SECTOR
61 MOTOROLA INC. IN DORMANT COMPANY SMALLER; ADDING OTHER TECH.
+++ ASSOCIATES FIRST CAP. BELOW CUTOFF SELL DORM'T SPINOFF REPRESENTS ONLY 0.1%
</TABLE>
-7-
<PAGE> 8
BRIDGEWAY FUND, INC.
ULTRA-LARGE 35 INDEX PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS (unaudited)
Showing percentage of total net assets
December 31, 1998
<TABLE>
<CAPTION>
Industry Company Shares Value
-------- ------- ------ -----------
<S> <C> <C>
Common Stock - 97.3%
Automobiles - 4.3%
Ford Motor Company 480 $ 28,170
General Motors Corp. 722 51,668
-----------
79,838
Banking - 5.6%
Bankamerica Corp. 1,073 64,514
Citigroup Inc. 825 40,889
-----------
105,403
Beverages - 6.2%
Coca-Cola Company * 606 40,602
Pepsico, Inc. 1,823 74,515
-----------
115,117
Chemicals - 1.1%
Dupont E.I. De Nemours & Co. 396 21,013
Cosmetics & Toiletries - 1.8%
Gillette Co. 709 34,254
Data Processing - Hardware - 5.3%
Cisco Systems, Inc. * 529 49,098
International Business
Machines Corp. 269 49,698
-----------
98,796
Data Processing - Software & Services - 6.5%
Microsoft Corp * 375 52,008
Oracle Corp. * 1,608 69,345
-----------
121,353
Drugs-Generic and OTC - 8.5%
Bristol Myers Squibb Company 342 45,764
Merck & Company, Inc. 282 41,666
Pfizer, Inc. 566 70,998
-----------
158,428
Electronics/Electric - 8.5%
General Electric Company 527 53,787
Intel, Corp. 380 45,054
Motorola, Inc. 984 60,086
-----------
158,927
Finance - 3.4%
Fannie Mae 871 64,454
Food Serving - 2.4%
McDonalds Corp. 582 44,669
Household Products - 2.8%
The Procter & Gamble Co. 569 51,957
Insurance- 3.7%
American International
Group, Inc. 717 69,280
Leisure-Amusement - 3.6%
The Walt Disney Company 2,225 $ 66,750
Medical equipment/Supplies - 3.4%
Johnson & Johnson, Inc. 766 64,248
Oil & Gas - 7.8%
Chevron Corp. 723 59,964
Exxon Corp. 534 39,049
Mobil Corp. 548 47,745
-----------
146,758
Retail Stores - 2.4%
Wal-Mart Stores, Inc. 562 45,768
Services - 0.1%
Associates First Capital 42 1,780
Specialty Instruments - 3.0%
Hewlett Packard Company 808 55,197
Telecommunications - 16.9%
AT&T Corp. 882 66,371
Bell Atlantic Corp. 941 53,343
GTE Corp. 926 61,811
SBC Communications, Inc. 1,258 67,460
Worldcom, Inc. * 942 67,589
-----------
316,574
-----------
Total Common Stock (Identified Cost $1,512,716) $ 1,820,564
Short-term Investments - 0.0%
Money Market Funds - 0.0%
Expedition Money Market Fund 113 113
-----------
Total Short-term Investments (Identified
Cost $113) $ 113
-----------
Total Investments - 97.3%
(Cost $1,512,829) $ 1,820,677
Other Assets and Liabilities, net - 2.7% 50,272
-----------
Total Net Assets - 100.0% $ 1,870,949
===========
</TABLE>
* Non-income producing security as no dividends were paid during the period from
July 1, 1998 to December 31, 1998.
** The aggregate identified cost on a tax basis is $1,512,829. Gross unrealized
appreciation and depreciation were $310,825 and $2,977, respectively, or net
unrealized appreciation of $307,848.
See accompanying notes to financial statements.
-8-
<PAGE> 9
BRIDGEWAY FUND, INC. - ULTRA-LARGE 35 INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments at value (cost - $1,512,829) $ 1,820,677
Cash 108,299
Receivable for dividends 84
Receivable from adviser 2,647
Prepaid expenses 884
Deferred organization costs 3,241
-----------
Total assets 1,935,832
-----------
LIABILITIES:
Payable for investments purchased 58,213
Payable for management fee 128
Payable for organization costs 3,244
Accrued expenses 3,298
-----------
Total liabilities 64,883
-----------
NET ASSETS ( 270,423 SHARES OUTSTANDING) $ 1,870,949
===========
Net asset value, offering and redemption price per share ($1,870,949 / 270,423) $ 6.92
===========
NET ASSETS REPRESENT:
Paid-in capital $ 1,618,336
Undistributed investment income 1,567
Net realized loss on investments (56,802)
Net unrealized appreciation of investments 307,848
-----------
NET ASSETS $ 1,870,949
===========
</TABLE>
BRIDGEWAY FUND, INC. - ULTRA-LARGE 35 INDEX PORTFOLIO
STATEMENT OF OPERATIONS (Unaudited)
For the six months ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 6,867
Interest 175
---------
Total income 7,042
EXPENSES:
Management fees 473
Accounting fees 2,793
Audit fees 2,622
Custody 1,419
Directors fees 617
Amortization of organization costs 456
Registration fees 346
Legal 128
Insurance 24
---------
Total expenses 8,878
Less fees waived (3,266)
Less expenses reimbursed (4,738)
---------
Net expenses 874
---------
NET INVESTMENT INCOME 6,168
---------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized loss on investments (55,917)
Net change in unrealized appreciation 265,938
---------
Net realized and unrealized gain 210,021
---------
NET INCREASE IN ASSETS RESULTING FROM OPERATIONS $ 216,189
=========
</TABLE>
See accompanying notes to financial statements.
-9-
<PAGE> 10
BRIDGEWAY FUND, INC. - ULTRA-LARGE 35 INDEX PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS (Unaudited)
<TABLE>
<CAPTION>
Six months ended July 31, 1997* to
INCREASE (DECREASE) IN NET ASSETS: December 31, 1998 June 30, 1998
<S> <C> <C>
OPERATIONS:
Net investment income $ 6,168 $ 1,941
Net realized loss on investments (55,917) (885)
Net change in unrealized appreciation 265,938 41,910
----------- -----------
Net increase resulting from operations 216,189 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 1,686,547 410,146
Reinvestment of dividends 6,278 0
Cost of shares redeemed (417,895) (66,741)
----------- -----------
Net increase from Fund share transactions 1,274,930 343,405
----------- -----------
Net increase in net assets 1,484,578 386,371
NET ASSETS:
Beginning of period 386,371 0
----------- -----------
End of period (including undistributed investment
income of $1,567 and $1,941, respectively) $ 1,870,949 $ 386,371
=========== ===========
Number of Fund shares:
Sold 274,676 75,335
Issued on dividends reinvested 1,068 0
Redeemed (68,688) (11,968)
----------- -----------
Net increase 207,056 63,367
Outstanding at beginning of period 63,367 0
----------- -----------
Outstanding at end of period 270,423 63,367
=========== ===========
</TABLE>
BRIDGEWAY FUND, INC. - ULTRA-LARGE 35 INDEX PORTFOLIO
FINANCIAL HIGHLIGHTS (Unaudited)
(for a share outstanding throughout the period)
<TABLE>
<CAPTION>
Six months ended July 31, 1997* to
December 31, 1998 December 31, 1997
<S> <C> <C>
PER SHARE DATA
Net asset value, beginning of period $ 6.10 $ 5.00
---------- --------
Income (loss) from investment operations:
Net investment income 0.03 0.07
Net realized and unrealized gain 0.82 1.03
---------- --------
Total from investment operations 0.85 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 $ 6.92 $ 6.10
========== ========
TOTAL RETURN [1] 14.0% 22.0%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period $1,870,949 $386,371
Ratios to average net assets: [2]
Expenses after waivers and reimbursements 0.15% 0.15%
Expenses before waivers and reimbursements 1.50% 9.73%
Net investment income after waivers and reimbursements 1.04% 1.47%
Portfolio turnover rate [2] 48.5% 64.3%
</TABLE>
[1] Not annualized for periods less than a year.
[2] Annualized for periods less than a year.
* July 31, 1997 commencement of operations
See accompanying notes to financial statements.
-10-
<PAGE> 11
BRIDGEWAY FUND, INC.
ULTRA-LARGE 35 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. Organization:
Bridgeway Fund, Inc. (the "Fund") was organized as a Maryland corporation
on October 19, 1993, and is registered under the Investment Company Act
of 1940, as amended, as a no-load, diversified, open-end management
investment company.
The Fund is organized as a series fund and has six portfolios. The Fund
commenced operations as a regulated investment company on August 5, 1994
with the Ultra-Small Company Portfolio, the Aggressive Growth Portfolio
and the Social Responsibility Portfolio. On July 20, 1997, the Fund added
two portfolios: the Ultra-Small Index Portfolio and the Ultra-Large 35
Index Portfolio. On June 5, 1998, the Fund added the Micro-Cap Limited
Portfolio. The Fund is authorized to issue 1,000,000,000 shares.
Bridgeway Capital Management, Inc. is the Adviser to the Fund.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.
Securities Valuation
Securities are valued at the closing price for securities traded on a
principal U.S. securities exchange and on NASDAQ. Listed securities for
which no sales are reported are valued at the latest bid price in
accordance with the pricing policy established by the Fund's Board of
Directors. When current bid prices are not available, the most recently
available quoted closing or bid price is used and adjusted for changes in
the index on the exchange on which that security trades, also in
accordance with the pricing policy established by the Fund's Board of
Directors.
Federal Income Taxes
It is the Fund's policy to comply with the requirements of Subchapter M
of the Internal Revenue Code applicable to regulated investment
companies, including the timely distribution of all its taxable income to
its shareholders. Therefore, no federal income tax provision has been
recorded.
Deferred Organization Costs
Deferred organization costs are amortized on a straight-line basis over
five years.
Distributions to Shareholders
Distributions to shareholders are recorded when declared. The amount and
character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles.
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
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BRIDGEWAY FUND, INC.
ULTRA-LARGE 35 INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Unaudited), Continued
2. Significant Accounting Policies
Risks and Uncertainties, Continued
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 is no "12b-1 fee."
Other
Security transactions are accounted for as of the trade date, the date
the order to buy or sell is executed. Realized gains and losses are
computed on the identified cost basis. Dividend income is recorded on the
ex-dividend date, and interest income is recorded on the accrual basis.
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 $2
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 been voluntarily reimbursing 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
six months ended December 31, 1998. 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.
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 $1,515,406 and $277,901, respectively for the six months
ended December 31, 1998.
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