<PAGE> 1
BRIDGEWAY FUND, INC.
A FULLY NO-LOAD MUTUAL FUND FAMILY OF DOMESTIC STOCK MARKET PORTFOLIOS
AGGRESSIVE GROWTH
ULTRA-SMALL COMPANY (CLOSED)
ULTRA-SMALL INDEX
MICRO-CAP LIMITED (CLOSED)
ULTRA-LARGE 35 INDEX
PROSPECTUS
OCTOBER 31, 2000
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
[BRIDGEWAY LOGO]
<PAGE> 2
This prospectus presents concise information about Bridgeway that you
should know before investing. Please keep it for future reference. Text in
shaded "translation" boxes is intended to help the reader understand or
interpret other information presented nearby.
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Fund and its Portfolios ................................................ 2
Suitability ................................................................ 2
Aggressive Growth Portfolio ................................................ 3
Ultra-Small Company Portfolio .............................................. 8
Ultra-Small Index Portfolio ................................................ 13
Micro-Cap Limited Portfolio ................................................ 18
Ultra-Large 35 Index Portfolio ............................................. 23
Management of the Fund ..................................................... 28
Code of Ethics ............................................................. 30
Net Asset Values ........................................................... 30
Distribution of Fund Shares ................................................ 31
How to Purchase & Redeem Shares ............................................ 31
Tax Sheltered Retirement Plans ............................................. 33
Dividends, Distributions & Taxes ........................................... 33
Investment Techniques ...................................................... 34
Tax Efficiency ............................................................. 35
</TABLE>
PROSPECTUS OCTOBER 31, 2000
BRIDGEWAY FUND, INC.
THE FUND AND ITS PORTFOLIOS
Bridgeway Fund Inc. ("the Fund") is a fully no-load mutual fund comprised
of five Portfolios: Aggressive Growth Portfolio, Ultra-Small Company Portfolio,
Ultra-Small Index Portfolio, Micro-Cap Limited Portfolio, and Ultra-Large 35
Index Portfolio. The Fund portfolios seek long-term growth primarily through
stock market investments. Each portfolio has its own investment objective,
strategy, and risk profile. From its inception on August 5, 1994 until October
31, 2000 the Social Responsibility Portfolio was a series of Bridgeway Fund. On
October 31, 2000 it was merged with the Calvert Large Cap Growth Fund, a series
of the Calvert Impact Fund. Bridgeway Capital Management retains portfolio
management as the sub-adviser of the Fund.
SUITABILITY
All five Portfolios:
o are designed for investors with long-term goals in mind.
THE FUND STRONGLY DISCOURAGES SHORT-TERM TRADING OF ITS SHARES.
o offer you the opportunity to participate in financial markets through stock
portfolios professionally managed by Bridgeway Capital Management.
o offer you the opportunity to diversify your investments.
o carry certain risks, including the risk that you can lose money if fund
shares, when redeemed, are worth less than the purchase price.
o are not bank deposits and are not guaranteed or insured.
2
<PAGE> 3
THE AGGRESSIVE GROWTH PORTFOLIO
INVESTMENT OBJECTIVE: To exceed the stock market total return (primarily
through capital appreciation) at a level of total risk roughly equal to that of
the stock market over longer periods of time (three years or more). The S&P 500
Index with dividends reinvested serves as a proxy for "stock market" in this
objective.
PRINCIPAL INVESTMENT STRATEGY: The Aggressive Growth Portfolio invests in a
diversified portfolio of common stocks of all size companies that are listed on
the New York Stock Exchange, the American Stock Exchange and NASDAQ. The Adviser
selects stocks for the Portfolio according to proprietary quantitative models
that span various investment styles including both "growth" and "value." Value
stocks are those priced cheaply relative to some financial measures of worth.
Growth stocks have faster increasing sales and earnings. The Adviser seeks to
achieve the Portfolio risk objective by investing in stocks which it believes
have a lower probability of decline in the long term, though more volatile
individually in the short-term. The Portfolio may engage in active and frequent
trading, which results in higher trading costs and, for shareholders in taxable
accounts, a higher tax burden. The Portfolio may also use aggressive investment
techniques such as:
o leveraging (borrowing up to 50% of its assets from banks),
o purchasing and selling futures and options on individual stocks and stock
indexes,
o entering into short-sale transactions (up to 20% of assets),
o investing up to 25% of assets in a single company,
o investing up to 10% of assets in foreign companies (currently only those
which trade on American Exchanges), and
o short-term trading (buying and selling the same security in less than a
three-month timeframe).
PORTFOLIO NAME CHANGE: The Portfolio's name includes the word "growth" to
distinguish it from funds whose objective is also to produce income. Since
naming the Portfolio, the word "growth" is now more frequently used to mean fast
growing companies. While the Portfolio currently appears in the "growth"
investment style boxes of fund reporting services, it has not always done so,
and "growth" is not specifically our Portfolio objective. Therefore, the
Bridgeway Fund Board of Directors is considering changing the name of the
Portfolio.
3
<PAGE> 4
PRINCIPAL RISK FACTORS: Shareholders of this Portfolio are exposed to
higher risk and could lose money over short or even long periods.
Because the Portfolio invests in any size company and because there are a
larger number of small companies, the Portfolio may bear the short-term risk
(volatility) associated with small companies. The Portfolio may also exhibit
higher volatility due to the use of aggressive investment techniques including
futures, options, and leverage. These techniques may magnify the risk of loss in
an unfavorable market environment.
Individual short-sale positions can theoretically expose shareholders to
unlimited loss, although the Adviser seeks to mitigate this potential loss by
limiting a single short-sale position to 2.5% of net assets.
The Portfolio invests in a smaller number of companies than many mutual
funds. There were just 56 companies in the Portfolio on June 30, 2000. The top
ten stocks accounted for 44% of Portfolio net assets. It is not unusual for one
or two stocks each to represent 10% or more of Portfolio holdings. This is
called "focus," and will likely add to Portfolio volatility. It exposes the
shareholder to company-specific risk, or the risk that bankruptcy of a single
company will significantly affect total Portfolio return.
WHO SHOULD INVEST: The Adviser believes that this Portfolio is more
appropriate as a long-term investment (at least 5 years, but ideally 10 years or
more) for shareholders who can accommodate high short-term price volatility. It
may also be appropriate as a diversifier (a method of spreading risk) of other
investments. IT IS NOT AN APPROPRIATE INVESTMENT FOR SHORT-TERM INVESTORS, THOSE
TRYING TO TIME THE MARKET OR THOSE WHO WOULD PANIC DURING A MAJOR MARKET OR
PORTFOLIO CORRECTION.
4
<PAGE> 5
PERFORMANCE: The bar chart and table below provide an indication of the
risk of investing in the Portfolio. The bar chart shows how the Portfolio's
performance has varied from one year to another. The table shows how the
Portfolio's average annual returns for various periods compare with those of
stock market indexes of large and small companies. This information is based on
past performance. It is not a prediction of future results.
YEAR BY YEAR % RETURNS AS OF 12/31 OF EACH YEAR
[GRAPH]
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
27.05% 32.20% 18.27% 19.28% 120.61%
</TABLE>
Return from 1/1/00 through 9/30/00 was 34.75%.
Best Quarter: Q4 99, +69.34% Worst Quarter: Q3 98, -23.28%
AVERAGE ANNUAL TOTAL % RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
FUND/INDEX 1 YEAR 5 YEAR SINCE INCEPTION (8/5/94)
---------- ------- ------ ------------------------
<S> <C> <C> <C>
Brigdeway Aggressive Growth 113.08% 41.96% 38.67%
S&P 500 Index(1) 7.22% 23.75% 23.91%
Russell 2000 Index(2) 14.32% 14.27% 15.16%
</TABLE>
(1) The S&P 500 is an unmanaged index of large companies with dividends
reinvested.
(2) The Russell 2000 is an unmanaged index of small companies with dividends
reinvested. Past performance does not guarantee future results.
5
<PAGE> 6
FEES AND EXPENSES OF THE PORTFOLIO: The following table describes the fees
and expenses that you may pay if you buy and hold shares of the Portfolio.
AGGRESSIVE GROWTH FEE TABLE
<TABLE>
<S> <C>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Charge (Load) Imposed on Purchases None
Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
ANNUAL OPERATING EXPENSES(1) (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
Management Fees 1.47%
Distribution (12b-1) Fees(2) 0.00%
Other Expenses 0.54%
-----
Total Operating Expenses 2.01%
Fee Waiver (0.01)%
-----
Net Expenses 2.00%
</TABLE>
(1) All figures in this table are expressed as a percentage of average net
assets.
(2) By contract, the Adviser pays all distribution (12b-1) fees.
The following example is intended to help you compare the cost of investing
in the Portfolio with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Portfolio for the time periods indicated
and then redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Portfolio's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
AGGRESSIVE GROWTH EXPENSE EXAMPLE
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Expenses $210 $651 $1,117 $2,406
</TABLE>
6
<PAGE> 7
FINANCIAL HIGHLIGHTS: The financial highlights table is intended to help
you understand the Portfolio's financial performance for the period of the
Portfolio's operation. Certain information reflects financial results for a
single Portfolio share. The total returns in the table represent the rate that
an investor would have earned (or lost) on an investment in the Portfolio
(assuming reinvestment of all dividends and distributions). This information has
been audited by PricewaterhouseCoopers LLP, whose report, along with the
Portfolio's financial statements, are included in the annual report. This report
is available from Bridgeway upon request.
AGGRESSIVE GROWTH PORTFOLIO
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
6/30/00 6/30/99 6/30/98 6/30/97 6/30/96
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, beginning of period $ 26.02 $20.32 $18.79 $16.66 $11.71
------- ------ ------ ------ ------
Income (Loss) from investment operations
Net Investment income (loss) (0.60) (0.13) (0.30) (0.24) (0.18)
Net realized and unrealized gain 27.86 6.43 3.46 3.43 5.22
------- ------ ------ ------ ------
Total from investment operations 27.26 6.30 3.16 3.19 5.04
------- ------ ------ ------ ------
Less distributions to shareholders
Net investment income 0 0.00 0.00 0.00 0.00
Net realized gains (4.29) (0.60) (1.63) (1.06) (0.09)
------- ------ ------ ------ ------
Total distributions (4.29) (0.60) (1.63) (1.06) (0.09)
------- ------ ------ ------ ------
Net asset value, end of period $ 48.99 $26.02 $20.32 $18.79 $16.66
------- ------ ------ ------ ------
PORTFOLIO TOTAL RETURN 113.1% 33.4% 18.1% 19.9% 43.3%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period (in 000s) $44,902 $9,510 $6,852 $3,420 $1,502
Ratio to average net assets:
Expenses after waivers and reimbursements 2.00% 1.04% 2.00% 2.00% 1.97%
Expenses before waivers and reimbursements 2.00% 1.04% 2.00% 2.77% 5.73%
Net investment income (loss) after waivers (1.52)% (0.65)% (1.50)% (1.40)% (1.26)%
and reimbursements
Portfolio turnover rate 156.9% 211.0% 132.3% 138.9% 167.7%
</TABLE>
7
<PAGE> 8
THE ULTRA-SMALL COMPANY PORTFOLIO
INVESTMENT OBJECTIVE: To provide a long-term total return of capital,
primarily through capital appreciation.
PRINCIPAL INVESTMENT STRATEGY: The Ultra-Small Company Portfolio invests in
a diversified portfolio of common stocks of ultra-small companies. "Ultra-small
companies" have a market capitalization the size of the smallest 10% of
companies listed on the New York stock Exchange. On June 30, 1999, this group
included stocks with a market capitalization of less than $89 million. The
majority of stocks in this Portfolio are listed on NASDAQ rather than the New
York Stock Exchange. The Adviser selects stocks for the Portfolio according to
proprietary quantitative models that span various investment styles, including
both "growth" and "value," but the overall portfolio has a strong value bias.
Value stocks are those priced cheaply, relative to some financial measures of
worth. Growth stocks have faster increasing sales and earnings. The Portfolio
may engage in active and frequent trading, which results in higher trading costs
and, for shareholders in taxable accounts, a higher tax burden.
PORTFOLIO CLOSING COMMITMENT: The Portfolio is closed to new investors. It
will remain closed to new investors unless net assets drop below $27.5 million
and the funds board of directors votes to reopen the Portfolio. The Portfolio
will be closed even to current shareholders when assets exceed $55 million. The
Board of Directors will consider closing the Portfolio at the end of its fiscal
year on June 30, 2001. This size limitation should keep the Portfolio more
"nimble" in the marketplace, enabling the Adviser to purchase and sell stocks
more quickly than would otherwise be possible.
TRANSLATION
What are Ultra-Small Companies?
Ultra-Small Companies are those the size of the smallest 10% of companies
listed on the New York Stock Exchange. Compared to the size companies in which
most other mutual funds invest, ultra-small companies are spectacularly small.
They are smaller than micro-cap and exhibit greater short-term risk. Companies
this size typically have 20 to 2000 employees, produce revenues of $10 to $500
million annually, and may be known for just one product or service.
8
<PAGE> 9
PRINCIPAL RISK FACTORS: The market price of ultra-small company shares
typically exhibit much greater volatility than large company shares and
significantly greater volatility than small-company shares. Therefore,
shareholders of this Portfolio are exposed to higher risk and could lose money
over short or even long periods.
Ultra-small companies may:
o have limited resources for expanding or surviving in a newly competitive
environment,
o lack depth of management,
o have a limited product line, and
o be more sensitive to economic downturns than companies with large
capitalizations.
The Portfolio is also subject to the risk that ultra-small company stocks
will underperform other kinds of investments for a period of time. This risk is
true of any market segment. Based on historical data, such periods of
underperformance may last six years or more.
WHO SHOULD INVEST: The Portfolio is closed to new investors. For current
shareholders, the Adviser believes that this Portfolio is appropriate as a
long-term investment (at least 5 years, but ideally 10 years or more) for
shareholders who can accommodate very high short-term price volatility. It may
also be appropriate as a diversifier (a method of spreading risk) for a
portfolio consisting primarily of large stocks. IT IS NOT AN APPROPRIATE
INVESTMENT FOR SHORT-TERM INVESTORS, THOSE TRYING TO TIME THE MARKET, OR THOSE
WHO WOULD PANIC DURING A MAJOR MARKET OR PORTFOLIO CORRECTION.
9
<PAGE> 10
PERFORMANCE: The bar chart and table below provide an indication of the
risk of investing in the Portfolio. The bar chart shows how the Portfolio's
performance has varied from one year to another. The table shows how the
Portfolio's average annual returns for various periods compare with those of a
securities market index of similar size companies. This information is based on
past performance. It is not a prediction of future results.
YEAR BY YEAR % RETURNS AS OF 12/31 OF EACH YEAR
[GRAPH]
Return from 1/1/00 through 9/30/00 was 14.49%.
Best Quarter: Q4 99, +34.46% Worst Quarter: Q3 98, -27.21%
AVERAGE ANNUAL TOTAL % RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
FUND/INDEX 1 YEAR 5 YEAR SINCE INCEPTION (8/5/94)
<S> <C> <C> <C>
Bridgeway Ultra-Small Company 44.80% 22.97% 21.17%
CRSP Cap-based Portfolio 10 Index(1) 24.21% 13.79% 14.91%
</TABLE>
(1) The CRSP Cap-Based Portfolio 10 Index is an unmanaged index of 1,794
ultra-small companies compiled by the Center for Research in Security Prices,
with dividends reinvested. Past performance does not guarantee future results.
10
<PAGE> 11
FEES AND EXPENSES OF THE PORTFOLIO: The following table describes the fees
and expenses that you may pay if you buy and hold shares of the Portfolio.
ULTRA-SMALL COMPANY PORTFOLIO FEE TABLE
<TABLE>
<S> <C>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Charge (Load) Imposed on Purchases) None
Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
ANNUAL OPERATING EXPENSES(1) (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 1.29%
Distribution (12b-1) Fees(2) 0.00%
Other Expenses 0.56%
-----
Total Operating Expenses 1.85%
Fee Waiver (0.00)%
-----
Net Expenses 1.85%
</TABLE>
(1) All figures in this table are expressed as a percentage of total net assets.
(2) By contract, the Adviser pays all distribution (12b-1) fees.
The following example is intended to help you compare the cost of investing
in the Portfolio with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Portfolio for the time periods indicated
and then redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Portfolio's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
ULTRA-SMALL COMPANY PORTFOLIO EXPENSE EXAMPLE
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Expenses $194 $601 $1,032 $2,233
</TABLE>
11
<PAGE> 12
FINANCIAL HIGHLIGHTS: The financial highlights table is intended to help you
understand the Portfolio's financial performance for the past 5 years. Certain
information reflects financial results for a single Portfolio share. The total
returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Portfolio (assuming reinvestment of all dividends
and distributions). This information has been audited by PricewaterhouseCoopers
LLP, whose report, along with the Portfolio's financial statements, are included
in the annual report, which is available from Bridgeway upon request.
ULTRA-SMALL COMPANY PORTFOLIO
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
6/30/00 6/30/99 6/30/98 6/30/97 6/30/96
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value, beginning of period $ 14.91 $ 22.52 $ 20.62 $ 16.68 $11.35
------- ------- ------- ------- ------
Income (Loss) from investment operations
Net Investment income (loss) (0.26) (0.28) (0.34) (0.24) (0.21)
Net realized and unrealized gain 6.94 (3.77) 4.03 4.50 6.03
------- ------- ------- ------- ------
Total from investment operations 6.68 (4.05) 3.69 4.26 5.82
------- ------- ------- ------- ------
Less distributions to shareholders
Net investment income 0.00 0.00 0.00 0.00 0.00
Net realized gains 0.00 (3.56) (1.79) (0.32) (0.49)
------- ------- ------- ------- ------
Total distributions 0.00 (3.56) (1.79) (0.32) (0.49)
------- ------- ------- ------- ------
Net asset value, end of period $ 21.59 $ 14.91 $ 22.52 $ 20.62 $16.68
------- ------- ------- ------- ------
PORTFOLIO TOTAL RETURN 44.8% (14.6)% 18.4% 26.0% 52.4%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period (in 000s) $41,959 $32,648 $46,257 $30,070 $4,558
Ratio to average net assets:
Expenses after waivers and reimbursements 1.85% 2.00% 1.67% 1.67% 1.97%
Expenses before waivers and reimbursements 1.85% 2.26% 1.67% 1.87% 3.07%
Net investment income (loss) after waivers (1.26)% (1.82)% (1.42)% (1.37)% (1.47)%
and reimbursements
Portfolio turnover rate 64.0% 80.4% 103.4% 56.2% 155.9%
------- ------- ------- ------- ------
</TABLE>
12
<PAGE> 13
THE ULTRA-SMALL INDEX PORTFOLIO
INVESTMENT OBJECTIVE: To provide a long-term total return of capital,
primarily through capital appreciation.
PRINCIPAL INVESTMENT STRATEGY: The Adviser seeks to achieve this objective
by approximating the total return of the Cap-Based Portfolio 10 Index (the
"Index") published by the University of Chicago's Center for Research in
Security Prices. The Ultra-Small Index Portfolio invests exclusively, at the
time of purchase, in the Index stocks listed on the New York and American Stock
exchanges and the NASDAQ National Market. However, the majority of Index and
Portfolio stocks are traded on NASDAQ. In choosing stocks for the Portfolio, the
Adviser seeks to match the weighting of market capitalization, sector
representation, and financial characteristics of the full Index of stocks.
Ultra-small companies have a market capitalization the size of the smallest 10%
of companies listed on the New York stock Exchange. On June 30, 2000, this group
included stocks with a market capitalization up to $89 million. They are less
than one-tenth the size of companies in the widely quoted Russell 2000 Index of
small companies.
TRANSLATION
What are Ultra-Small Companies?
Ultra-Small Companies are those the size of the smallest 10% of companies
listed on the New York Stock Exchange. Compared to the size companies in which
most other mutual funds invest, ultra-small companies are spectacularly small.
They are smaller than micro-cap and exhibit greater short-term risk. Companies
this size typically have 20 to 2000 employees, produce revenues of $10 to $500
million annually, and may be known for just one product or service.
13
<PAGE> 14
PRINCIPAL RISK FACTORS: The market price of ultra-small company shares
typically exhibit much greater volatility than large company shares and
significantly greater volatility than small-company shares. Therefore,
shareholders of this Portfolio are exposed to higher risk and could lose money
over short or even long periods.
Ultra-small companies may:
o have limited resources for expanding or surviving in a newly competitive
environment,
o lack depth of management,
o have a limited product line, and
o be more sensitive to economic downturns than companies with large
capitalizations.
The Portfolio is also subject to the risk that ultra-small company stocks
will underperform other kinds of investments for a period of time. This risk is
true of any market segment. Based on historical data, such periods of
underperformance may last six years or more.
Apart from the risk inherent in investing in ultra-small companies, there
is a risk that the Portfolio total return may underperform the total return of
the Index that the Portfolio seeks to track. This is called "tracking error."
The actual return of this Portfolio could be lower than the Index for three
reasons:
o operating expenses cut into returns,
o transaction costs reduce returns, and
o the Portfolio does not own all 1700+ companies that comprise the index.
WHO SHOULD INVEST: The Adviser believes that this Portfolio is appropriate
as a long-term investment (at least 5 years, but ideally 10 years or more) for
shareholders who can accommodate very high short-term price volatility. It may
also be appropriate as a diversifier (a method of spreading risk) for a
portfolio consisting primarily of large stocks. IT IS NOT AN APPROPRIATE
INVESTMENT FOR SHORT-TERM INVESTORS, THOSE TRYING TO TIME THE MARKET, OR THOSE
WHO WOULD PANIC DURING A MAJOR MARKET OR PORTFOLIO CORRECTION.
14
<PAGE> 15
PERFORMANCE: The bar chart and table below provide an indication of the
risk of investing in the Portfolio. The bar chart shows how the Portfolio's
performance has varied from the first to the second full calendar year. The
table shows how the Portfolio's average annual returns for various periods
compare with those of a securities market index of similar sized companies. This
information is based on past performance. It is not a prediction of future
results.
YEAR BY YEAR % RETURNS AS OF 12/31 OF EACH YEAR
[GRAPH]
Return from 1/1/00 through 9/30/00 was 12.29%.
Best Quarter: Q4 99, +24.86% Worst Quarter: Q3 98, -22.85%
AVERAGE ANNUAL TOTAL % RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
FUND/INDEX 1 YEAR SINCE INCEPTION (7/31/97)
---------- ------ -------------------------
<S> <C> <C>
Bridgeway Ultra-Small Index 33.47% 10.10%
CRSP Cap-based Portfolio 10 Index(1) 24.21% 9.85%
</TABLE>
(1) The CRSP Cap-Based Portfolio 10 Index is an unmanaged index of 1,794
ultra-small companies compiled by the Center for Research in Security Prices,
with dividends reinvested. Past performance does not guarantee future results.
15
<PAGE> 16
FEES AND EXPENSES OF THE PORTFOLIO: The following table describes the fees
and expenses that you may pay if you buy and hold
shares of the Portfolio.
ULTRA-SMALL INDEX FEE TABLE (1)
<TABLE>
<S> <C>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Charge (Load) Imposed on Purchases None
Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fees(2) 0.00%
Exchange Fees None
ANNUAL OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
Management Fees 0.50%
Distribution (12b-1) Fees(3) 0.00%
Other Expenses 1.44%
-----
Total Operating Expenses 1.94%
Less Waiver and Expense Reimbursement(4) (1.19%)
-----
Net Expenses 0.75%
</TABLE>
(1) All figures in this table are expressed as a percentage of average net
assets.
(2) There were no redemption reimbursement fees charged in the most recent
fiscal year; however, a 2% redemption reimbursement fee may be charged for
redemptions as determined by the Board in a down market.
(3) By contract, the Adviser pays all distribution (12b-1) fees.
(4) The Adviser is contractually obligated to reimburse expenses, if necessary,
to ensure net expenses do not exceed 0.75%. This management contract expires
June 30, 2001. Any change to this Fund policy would require a vote by
shareholders.
The following example is intended to help you compare the cost of investing
in the Portfolio with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Portfolio for the time periods indicated
and then redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Portfolio's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
ULTRA-SMALL INDEX EXPENSE EXAMPLE
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Expenses $79 $510 $966 $2,232
</TABLE>
16
<PAGE> 17
FINANCIAL HIGHLIGHTS: The financial highlights table is intended to help you
understand the Portfolio's financial performance for the period of the
Portfolio's operation. Certain information reflects financial results for a
single Portfolio share. The total returns in the table represent the rate that
an investor would have earned (or lost) on an investment in the Portfolio
(assuming reinvestment of all dividends and distributions). This information has
been audited by PricewaterhouseCoopers LLP, whose report, along with the
Portfolio's financial statements, are included in the annual report, which is
available from Bridgeway upon request.
ULTRA-SMALL INDEX PORTFOLIO
<TABLE>
<CAPTION>
Year Ended Year Ended 7/31/97(a) to
6/30/00 6/30/99 6/30/98
---------- ---------- -------------
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value, beginning of period $ 4.96 $ 5.69 $ 5.00
------ ------ ------
Income (Loss) from investment operations
Net Investment income (loss) 0.03 (0.02) (0.02)
------ ------ ------
Net realized and unrealized gain 1.63 (0.71) 0.71
------ ------ ------
Total from investment operations 1.66 (0.73) 0.69
------ ------ ------
Less distributions to shareholders
Net investment income 0.00 0.00 0.00
Net realized gains 0.00 0.00 0.00
------ ------ ------
Total distributions 0.00 0.00 0.00
------ ------ ------
Net asset value, end of period $ 6.62 $ 4.96 $ 5.69
------ ------ ------
TOTAL RETURN 33.5% (12.8%) 13.8%(b)
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period (in 000s) $2,386 $1,586 $1,529
Ratio to average net assets:(c)
Expenses after waivers and reimbursements 0.75% 0.75% 0.75%(b)
Expenses before waivers and reimbursements 1.94% 2.43% 1.74%(b)
Net investment income (loss) after waivers and (0.53%) (0.51%) (0.38%)(b)
reimbursements
Portfolio turnover rate 21.1% 48.3% 61.7%(b)
------ ------ ------
</TABLE>
ULTRA-SMALL INDEX REDEMPTION REIMBURSEMENT FEE: The Bridgeway index
portfolios are best suited for investors who intend to be long-term
shareholders. Shareholders who redeem frequently or in the height of a market
downturn increase costs for the remaining shareholders. Consequently, the Fund
Board of Directors reserves the right to impose a redemption reimbursement fee
during a down market. Specifically, the Board of Directors may impose a 2%
redemption reimbursement fee any time the S&P 500 Index (without dividends
reinvested) has declined more than 5% cumulatively over the previous 5 trading
days. This fee accrues to the Portfolio itself, not to the Adviser.
No such redemption reimbursement fees were charged in the Portfolio's most
recent fiscal year.
17
<PAGE> 18
THE MICRO-CAP LIMITED PORTFOLIO
INVESTMENT OBJECTIVE: To provide a long-term total return of capital,
primarily through capital appreciation.
PRINCIPAL INVESTMENT STRATEGY: The Micro-Cap Limited Portfolio invests in a
diversified portfolio of common stocks of micro-cap companies. "Micro-cap"
companies are those with a market capitalization the size of the second smallest
10% of those listed on the New York stock Exchange. On June 30, 2000, this group
included stocks with a market capitalization between $90 and $184 million. The
majority of stocks in this Portfolio are listed on NASDAQ rather than the New
York Stock Exchange. The Adviser selects stocks for the Portfolio according to
proprietary quantitative models that span various investment styles, including
both "growth" and "value." Value stocks are those priced cheaply relative to
some financial measures of worth. Growth stocks have faster increasing sales and
earnings. The Portfolio may engage in active and frequent trading, which results
in higher trading costs and, for shareholders in taxable accounts, a higher tax
burden.
PORTFOLIO CLOSING COMMITMENT: The Portfolio is closed to new investors. It
will remain closed to new investors unless net assets drop below $27.5 million
and the funds board of directors votes to reopen the Portfolio. The Portfolio
will be closed even to current shareholders when assets exceed $55 million. This
feature is crucial to the Portfolio's "focus" of investing in a smaller number
of companies. On June 30, 2000, the Portfolio held 68 stocks. Closing at a very
low level of assets should also keep the Portfolio more "nimble," enabling the
Adviser to purchase and sell micro-cap stocks more quickly than would otherwise
be possible.
TRANSLATION
What are Micro-Cap Companies?
Micro-cap companies are those with a market capitalization (market size)
equal to second smallest 10% of the New York Stock Exchange. Compared to the
size companies in which most other mutual funds invest, micro-cap companies are
very small. They are smaller than small-cap but larger than ultra-small.
Companies this size typically have 100 to 3500 employees, produce revenues of
$100 million to $1 billion annually, and may be known for just one product or
service.
18
<PAGE> 19
PRINCIPAL RISK FACTORS: The market price of Micro-Cap Limited shares
typically exhibit much greater volatility (risk) than large company shares. In
addition, the Portfolio is focused on a smaller number of companies; this will
also likely add to Portfolio volatility. Therefore, shareholders of this
Portfolio are exposed to higher risk and could lose money over short or even
long periods.
Micro-cap companies may:
o have limited resources for expanding or surviving in a newly competitive
environment,
o lack depth of management,
o have a limited product line, and
o be more sensitive to economic downturns than companies with large
capitalizations.
The Portfolio is also subject to the risk that micro-cap company stocks
will underperform other kinds of investments for a period of time. This risk is
true of any market segment. Based on historical data, such periods of
underperformance may last six years or more.
WHO SHOULD INVEST: The Portfolio is closed to new investors. For current
shareholders, the Adviser believes that this Portfolio is more appropriate as a
long-term investment (at least 5 years, but ideally 10 years or more) for
shareholders who can accommodate very high short-term price volatility. It may
also be appropriate as a diversifier (a method of spreading risk) to a portfolio
consisting primarily of large stocks. IT IS NOT AN APPROPRIATE INVESTMENT FOR
SHORT-TERM INVESTORS, THOSE TRYING TO TIME THE MARKET OR THOSE WHO WOULD PANIC
DURING A MAJOR MARKET OR PORTFOLIO CORRECTION.
19
<PAGE> 20
PERFORMANCE: The bar chart below shows the Portfolio's performance for the
single full calendar year since inception. However, in future years multiple
bars will provide an indication of Portfolio risk. The table below the chart
shows how the Portfolio's average annual returns for one year and since
inception compare with those of a broad-based stock market index. This
information is based on past performance. It is not a prediction of future
results.
YEAR BY YEAR % RETURNS AS OF 12/31 OF EACH YEAR
[GRAPH]
Return from 1/1/00 through 9/30/00 was 13.64%.
Best Quarter: Q4 98, +41.58% Worst Quarter: Q3 98, -24.00%
AVERAGE ANNUAL TOTAL % RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
FUND/INDEX 1 YEAR SINCE INCEPTION (7/1/98)
---------- ------ ------------------------
<S> <C> <C>
Bridgeway Micro-Cap Limited 28.73% 28.16%
CRSP Cap-Based Portfolio 9 Index* 23.21% 11.89%
</TABLE>
(1) The CRSP Cap-Based Portfolio 9 Index is an unmanaged index of 853 micro-cap
companies compiled by the Center for Research in Security Prices, with dividends
reinvested. Past performance does not guarantee future results.
20
<PAGE> 21
FEES AND EXPENSES OF THE PORTFOLIO: The following table describes the fees
and expenses that you may pay if you buy and hold
shares of the Portfolio.
MICRO-CAP LIMITED FEE TABLE
<TABLE>
<S> <C>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Charge (Load) Imposed on Purchases None
Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
ANNUAL OPERATING EXPENSES(1) (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
Management Fees 1.58%
Distribution (12b-1) Fees(2) 0.00%
Other Expenses 0.78%
Total Operating Expenses 2.36%
Fee Waiver(3) 0.46%
Net Expenses 1.90%
</TABLE>
(1) All figures in this table are expressed as a percentage of average net
assets.
(2) By contract, the Adviser pays all distribution (12b-1) fees.
(3) The Adviser is contractually obligated to reimburse expenses, if necessary,
to ensure net expenses do not exceed 1.90%. This management contract expires
June 30, 2001. Any change to this Fund policy would require a vote by
shareholders.
The following example is intended to help you compare the cost of investing
in the Portfolio with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Portfolio for the time periods indicated
and then redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Portfolio's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
MICRO-CAP LIMITED EXPENSE EXAMPLE
<TABLE>
<CAPTION>
1 Year 3 years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Expenses $200 $716 $1,260 $2,743
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS: The financial highlights table is intended to help you
understand the Portfolio's financial performance for the period of the
Portfolio's operation. Certain information reflects financial results for a
single Portfolio share. The total returns in the table represent the rate that
an investor would have earned (or lost) on an investment in the Portfolio
(assuming reinvestment of all dividends and distributions). This information has
been audited by PricewaterhouseCoopers LLP, whose report, along with the
Portfolio's financial statements, are included in the annual report. This report
is available from Bridgeway upon request.
MICRO-CAP LIMITED PORTFOLIO
<TABLE>
<CAPTION>
Year Ended Year Ended 6/22/98(a) to
6/30/00 6/30/99 6/30/98(b)
------------ ------------ -------------
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value, beginning of period $ 6.38 $ 5.00 $ 5.00
------------ ------------ ------------
Income (Loss) from investment operations
Net Investment income (loss) (0.09) (0.06) 0.00
Net realized and unrealized gain 1.87 1.44 0.00
------------ ------------ ------------
Total from investment operations 1.78 1.38 0.00
------------ ------------ ------------
Less distributions to shareholders
Net investment income 0.00 0.00 0.00
Net realized gains (0.30) 0.00 0.00
------------ ------------ ------------
Total distributions (0.30) 0.00 0.00
------------ ------------ ------------
Net asset value, end of period $ 7.86 $ 6.38 $ 5.00
------------ ------------ ------------
TOTAL RETURN 28.7% 27.6% 0.0%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period (in 000s) $ 24,773 $ 13,932 $ 9,071
Ratio to average net assets:
Expenses after waivers and reimbursments 1.90% 1.54% 0.00%
Expenses before waivers and reimbursements 2.36% 1.54% 0.00%
Net investment income (loss) after waivers 1.25% (1.20)% 0.00%
and reimbursments
Portfolio turnover rate 73.9% 117.0% 0.00%
</TABLE>
22
<PAGE> 23
THE ULTRA-LARGE 35 INDEX PORTFOLIO
INVESTMENT OBJECTIVE: To provide a long-term total return of capital,
primarily through capital appreciation, but also some income.
PRINCIPAL INVESTMENT STRATEGY: The Adviser seeks to achieve this objective
by approximating the total return of the Bridgeway Ultra-Large 35 Index (the
"Index") while minimizing the distribution of capital gains and minimizing
costs. The Portfolio invests in the stocks that comprise the Index and aims to
match the Index composition and weighting. Similar to other index funds, the
actual return of this Portfolio will likely underperform the Bridgeway
Ultra-Large 35 Index by an amount similar to the Portfolio expenses and
transaction costs. The Adviser intends to minimize this difference or "tracking
error" by carefully managing costs, reimbursing expenses over 0.15% annually,
keeping Portfolio turnover and transaction expenses low, strongly discouraging
market timers and short-term traders from investing in the Portfolio, and by the
potential imposition of a redemption fee in a market downturn.
The income objective of this Portfolio, which is a secondary objective, is
achieved almost exclusively from dividends paid by Portfolio companies. However,
not all the Index companies pay dividends.
TRANSLATION
What is an Ultra-Large Company?
Bridgeway denotes "ultra-large" as the largest 150 U.S. companies as
defined by market capitalization. At the time of Index rebalancing in early
1999, the Index included all 23 of the largest U.S. companies, except one
tobacco company.
TRANSLATION
What Are the "Active" 35 Ultra-Large Companies in the Index?
America Online*
American Int'l Group
AT&T
Bankamerica
Bell Atlantic
Bristol Myers Squibb
Chevron
Cisco Systems
Citigroup
Coca-Cola
Dell Computer
Dupont
Exxon/Mobil
Federal Nat'l Mortgage
Ford
General Electric
General Motors
Hewlett Packard
Home Depot
Intel
IBM
Johnson & Johnson
Lucent Technologies
McDonalds
Merck
Microsoft
Motorola
Oracle
Pfizer
SBC Communications
Procter & Gamble
Time Warner*
United Postal Services
Wal-Mart
Walt Disney
Worldcom
* Merger expected in late 2000.
23
<PAGE> 24
INDEX COMPOSITION: Thirty-five of the largest U.S. companies make up the
vast majority of this index, after excluding a tobacco company and ensuring
reasonable industry diversification. These companies are huge, "blue-chip,"
well-known names. As of 6/30/00, Index companies ranged from $39 to $477 billion
in market capitalization (market size). Companies which are "spun off" from
another Index company are typically held in the Index at least 6 months. As of
6/30/00, Agilent Technologies, Inc. and Visteon Corp. represent the only two
such Index companies and they make up less than 1% of the Portfolio.
The Ultra-Large 35 Index is compiled by Bridgeway Capital Management, Inc.
with taxable accounts in mind. The Index company composition is rebalanced every
two or three years rather than annually. This keeps Index "turnover" lower than
most other market indexes.
PRINCIPAL RISK FACTORS: Shareholders of this Portfolio are exposed to
significant stock market related risk (volatility) and could lose money over
short or even long periods.
While large companies tend to exhibit less price volatility than small
stocks, historically they have not recovered as fast from a market decline.
Consequently, this Portfolio may expose shareholders to higher inflation risk
(the risk that the Portfolio value will not keep up with inflation) than some
other stock market investments.
The Portfolio is also subject to the risk that ultra-large company stocks
will underperform other kinds of investments for a period of time. This risk is
true of any market segment. Based on historical data, such periods of
underperformance may last five years or more.
While ultra-large stocks have historically been less volatile than other
stocks, the Adviser has expressed some concern that recent ultra-large company
valuations may represent a special risk for this Portfolio.
WHO SHOULD INVEST: The Adviser believes that this Portfolio is more
appropriate as a long-term investment (at least 5 years, but ideally 10 years or
more) for shareholders who want to invest in large U.S. companies, incur low
costs, and minimize their own taxable capital gains income. Due to the low cost
nature of the Portfolio, it may also be appropriate for long-term investors in
tax deferred accounts, such as IRAs. IT IS NOT AN APPROPRIATE INVESTMENT FOR
SHORT-TERM INVESTORS, THOSE TRYING TO TIME THE MARKET OR THOSE WHO WOULD PANIC
DURING A MAJOR MARKET OR PORTFOLIO CORRECTION.
24
<PAGE> 25
PERFORMANCE: The bar chart and table below provide an indication of the
risk of investing in the Portfolio. The bar chart shows how the Portfolio's
performance has varied from the first to the second full calendar year. The
table shows how the Portfolio's average annual returns for various periods
compare with those of a securities market index of similar sized companies. This
information is based on past performance. It is not a prediction of future
results.
YEAR BY YEAR % RETURNS AS OF 12/31 OF EACH YEAR
[GRAPH]
Return from 1/1/00 through 9/30/00 was -5.70%.
Best Quarter: Q4 98, +25.33% Worst Quarter: Q3 97, -9.02%
AVERAGE ANNUAL TOTAL % RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
FUND/INDEX 1 YEAR SINCE INCEPTION (7/31/97)
---------- ------ -------------------------
<S> <C> <C>
Bridgeway Ultra-Large 35 Index 11.74% 21.77%
S&P 500 Index(1) 7.22% 17.12%
</TABLE>
(1) The S&P 500 is an index of large companies, with dividends reinvested. Past
performance does not guarantee future results.
25
<PAGE> 26
FEES AND EXPENSES OF THE FUND: The following table describes the fees and
expenses that you may pay if you buy and hold shares of
the Portfolio.
ULTRA-LARGE 35 INDEX FEE TABLE (1)
<TABLE>
<S> <C>
SHAREHOLDER FEES (LOADS)
Sales Charge (Load) Imposed on Purchases None
Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fees(2) 0.00%
Exchange Fees None
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.08%
Distribution (12b-1) Fees(3) 0.00%
Other Expenses 0.39%
Total Operating Expenses 0.47%
Fee Waiver and Expense Reimbursement(4) (0.32)%
Net Expenses 0.15%
</TABLE>
(1) All figures in this table are expressed as a percentage of average net
assets.
(2) There were no redemption reimbursement fees charged in the most recent
fiscal year; however, a 1% redemption reimbursement fee may be charged for
redemptions as determined by the Board in a down market.
(3) By contract, the Adviser pays all distribution (12b-1) fees.
(4) The Adviser is contractually obligated to reimburse expenses, if necessary,
to ensure net expenses do not exceed 0.15%. This management contract expires
June 30, 2001. Any change to this Fund policy would require a vote by
shareholders.
The following example is intended to help you compare the cost of investing
in the Portfolio with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Portfolio for the time periods indicated
and then redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Portfolio's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
ULTRA-LARGE 35 INDEX EXPENSE EXAMPLE
<TABLE>
<CAPTION>
1 Year 3 years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Expenses $16 $122 $237 $575
</TABLE>
26
<PAGE> 27
FINANCIAL HIGHLIGHTS: The financial highlights table is intended to help you
understand the Portfolio's financial performance for the period of the
Portfolio's operation. Certain information reflects financial results for a
single Portfolio share. The total returns in the table represent the rate that
an investor would have earned (or lost) on an investment in the Portfolio
(assuming reinvestment of all dividends and distributions). This information has
been audited by PricewaterhouseCoopers LLP, whose report, along with the
Portfolio's financial statements, are included in the annual report, which is
available from Bridgeway upon request.
ULTRA-LARGE 35 INDEX PORTFOLIO
<TABLE>
<CAPTION>
Year Ended Year Ended 7/31/97(a) to
6/30/00 6/30/99 6/30/98
------------ ------------ -------------
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value, beginning of period $ 7.91 $ 6.10 $ 5.00
------------ ------------ ------------
Income (Loss) from investment operations
Net Investment income (loss) 0.08 0.07 0.07
Net realized and unrealized gain 0.85 1.77 1.03
------------ ------------ ------------
Total from investment operations 0.93 1.84 1.10
------------ ------------ ------------
Less distributions to shareholders
Net investment income (0.07) (0.03) 0.00
Net realized gains (0.00) 0.00 0.00
------------ ------------ ------------
Total distributions (0.07) (0.03) 0.00
------------ ------------ ------------
Net asset value, end of period $ 8.77 $ 7.91 $ 6.10
------------ ------------ ------------
PORTFOLIO TOTAL RETURN 11.7% 30.3% 22.0%(b)
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period (in 000s) $ 7,365 $ 4,528 $ 386
Ratio to average net assets:
Expenses after waivers and reimbursments 0.15% 0.15% 0.15%(b)
Expenses before waivers and reimbursements 0.47% 0.90% 9.73%(b)
Net investment income (loss) after waivers 0.98% 1.06% 1.47%(b)
and reimbursments
Portfolio turnover rate 28.3% 16.6% 64.3%(b)
</TABLE>
(a) July 31, 1997 was the commencement of operations.
(b) Not annualized for periods less than a year.
ULTRA-LARGE 35 INDEX REDEMPTION REIMBURSEMENT FEE: The Bridgeway index
portfolios are best suited for investors who intend to be long-term
shareholders. Shareholders who redeem frequently or in the height of a market
downturn increase costs for the remaining shareholders. Consequently, the Fund
Board of Directors reserves the right to impose a redemption reimbursement fee
during a down market. Specifically, the Board of Directors may impose a 1%
redemption reimbursement fee any time the S&P 500 Index (without dividends
reinvested) has declined more than 5% cumulatively over the previous 5 trading
days. This fee accrues to the Fund itself, not to the Adviser.
No such redemption reimbursement fees were charged in the Portfolio's most
recent fiscal year.
27
<PAGE> 28
MANAGEMENT OF THE FUND
The Fund's Board of Directors oversees the Fund management, decides on
matters of general policy and reviews the activities of the Fund's Adviser. The
Board also makes decisions concerning investment strategies, but will not change
a Portfolio's stated size limitations or closing commitments without a vote of
shareholders. The Fund's officers conduct and supervise its daily business
operations. Bridgeway Capital Management, Inc. of 5615 Kirby Drive, Suite 518,
Houston Texas 77005-2448, acts as the Investment Adviser. The Adviser is a Texas
corporation that was organized in 1993 to act as the Fund's investment adviser.
John Montgomery, President of the Fund and the Adviser has managed the affairs
and Portfolios of the Fund since inception. He is responsible for selecting the
securities that each Portfolio purchases and sells, although he is assisted by
other employees who provide him with research and trading assistance.
The Adviser is responsible for the investment and reinvestment of the
Fund's assets and provides the Fund with:
o executive and other personnel,
o office space and other facilities,
o administrative services, and
o supervision of the Fund's daily business affairs.
It formulates and implements a continuous investment program for the Fund,
consistent with the investment objectives, policies, and restrictions of each of
its Portfolios. For the fiscal year ended June 30, 2000, the Adviser received
the following investment advisory fees:
MANAGEMENT FEE FOR THE FISCAL YEAR ENDED JUNE 30, 2000 (1)
<TABLE>
<CAPTION>
PERFORMANCE-BASED
PORTFOLIO MANAGEMENT FEE FEE RANGE
--------- -------------- -----------------
<S> <C> <C>
Ultra-Small Company 1.29% NA
Ultra-Small Index 0.50% NA
Micro-Cap Limited 1.58% 0.20 to 1.60%
Aggressive Growth 1.47% 0.20 to 1.60%
Ultra-Large 35 Index 0.08% NA
</TABLE>
(1) All fees in this table are expressed as a percentage of average net assets.
Micro-Cap Limited and Aggressive Growth have performance-based fees which vary
from 0.20% to 1.6% of net assets, depending on performance relative to a market
index over the last five years (or since inception if the Portfolio is not yet
five years old). The fee for Ultra-Small Company and the base fee for Micro-Cap
Limited are calculated as follows: from $0 to $27.5 million in net assets, the
fee is 0.90%. From 27.5 million to $55 million, the fee is $495,000 subject to a
maximum 1.49%. Above $55 million, the fee is 0.90%.
28
<PAGE> 29
TRANSLATION
Who is the Founder and Portfolio Manager at Bridgeway?
John Montgomery is the founder of Bridgeway Capital Management, Inc. and
investment manager for Bridgeway Fund. He holds bachelor degrees from Swarthmore
College in both engineering and philosophy and graduate degrees from MIT and
Harvard Business School. He worked with computer modeling and quantitative
methods as a research engineer at MIT in the late 70's. Later, as a student at
Harvard, he investigated methods to apply modeling to portfolio management. John
began applying these methods to his own investments in 1985. Over the next six
years, this investment style proved more successful than even John had expected.
He left the transportation industry at the end of 1991 to perform full time
research on his investment models, to study the mutual fund industry, and to
write a business plan for Bridgeway.
Bridgeway Capital Management was incorporated in 1993 and Bridgeway Fund in
1994. The advisory firm has a very lean cost structure, relying heavily on
computers and a small, but very talented and dedicated team of employees. These
factors have enabled the firm to offer products unique to the mutual fund
industry. Bridgeway Ultra-Small Company and Ultra-Small Index Portfolios are
committed to investing long-term in public companies smaller than any other
mutual fund. As of September 30, 2000, Bridgeway Ultra-Large 35 Index Portfolio
had the lowest expense ratio of any retail mutual fund in America as reported by
Morningstar.
Bridgeway has an unusual corporate culture with a high energy, fun, but
modest atmosphere. Stressing process and results over titles and status, no
Bridgeway employee, including John, can make more than 7 times the total
compensation of the lowest paid employee. The firm ascribes to four business
values: integrity, investment performance, cost efficiency, and service.
29
<PAGE> 30
CODE OF ETHICS
Both the Fund and the Adviser subscribe to a mission statement which places
integrity above every other business goal. Neither the Fund nor the Adviser:
o takes part in directed brokerage arrangements,
o pays soft dollar commissions,
o has a brokerage relationship with any affiliated organization, or
o will invest in tobacco companies.
The Fund portfolio manager is encouraged to invest in shares of the Fund and is
not allowed to invest in shares of equity securities which the Fund might also
potentially own. Other employees, officers, and directors of the Fund and the
Adviser are also encouraged to own shares of the Fund and may only trade shares
of equity securities within very stringent guidelines contained in the Code of
Ethics.
Copies of the Code of Ethics may be obtained from our web address
www.bridgewayfund.com/ethics.htm. Any shareholder or potential shareholder who
feels a policy, action, or investment of the Fund or Adviser does or may
compromise the highest standards of integrity is encouraged to write or call the
Fund.
TRANSLATION
What's the Big Deal About the "Code of Ethics"?
At Bridgeway, we take ethical issues very seriously. We are willing to walk
away from certain revenue-generating activities to avoid conflicts of interest
between the Fund and its Adviser. We try to ensure that the interests of the
Adviser reflect those of Fund shareholders.
NET ASSET VALUE OR NAV
The net asset value per share of each Portfolio is the value of the
Portfolio's investments plus other assets, less its liabilities divided by the
number of Portfolio shares outstanding. The value of the Portfolio's securities
is determined by the market value of these securities.
Because the Fund charges no sales fee, the price you pay for shares is the
Portfolio's net asset value (NAV). The Fund is open for business every day the
New York Stock Exchange (NYSE) is open. Every buy or sell order you place in the
proper form will go through at the next NAV calculated after your order has been
received. The Adviser calculates the NAV for each Portfolio at the end of
regular trading on the NYSE on business days, usually 4:00 p.m. eastern time. If
the NYSE begins an after-hours trading session, the Board of Directors will set
closing price procedures. Currently, the plan is to use prices based on the 4:00
p.m. Eastern Time close. Mutual fund marketplaces and members of the National
Securities Clearing Corporation (NSCC) may have an earlier cut-off time for
pricing your transaction.
30
<PAGE> 31
Because foreign markets may be open on days when US. markets are closed,
the value of foreign securities owned by a Portfolio could change on days when
you cannot buy or sell Fund shares. The NAV of each Portfolio, however, will not
change until the next time it is calculated.
DISTRIBUTION OF FUND SHARES
The Adviser pays for all Fund distribution costs, including the
distribution fees listed in the fee tables of this prospectus. The Adviser may
pay up to 0.25% of the average daily net assets attributable to broker/dealers,
registered representatives, retirement plan consultants, or fund marketplaces
that help distribute the Fund. Any such distribution arrangement must be
approved by a majority of independent Fund directors. Any fee paid to fund
marketplaces for transfer agency costs (not distribution) will be paid by the
Fund itself. In accordance with Board policy, such transfer agency costs will
not exceed a rate equal to the lesser of Bridgeway Fund's internal rate, or a
rate representative of a comparable industry benchmark. On October 15, 1996
shareholders approved a 12b-1 Plan whereby the Fund acts as its own distributor,
and the Adviser pays all distribution expenses. Shareholders pay no 12b-1 fee.
The Board has reapproved the Plan each year.
HOW TO PURCHASE AND REDEEM SHARES
NEW SHAREHOLDERS
New shareholders of the Fund may purchase shares through the mutual fund
marketplaces and through any member of the National Securities Clearing
Corporation (NSCC).
Two of these mutual fund marketplaces, E*Trade Securities and Web Street
Securities, offer shares of Bridgeway Fund on a "no-transaction fee basis" after
establishing an account by sending a completed application and a minimum initial
investment of $2,000. After receiving account verification, investors may place
trades over the Internet or by voice response system for no charge. If you need
assistance in setting up a marketplace account or have questions about how to
purchase Bridgeway Fund shares in this manner, please call the Fund at
800-661-3550.
Other fund marketplaces and brokers who are NSCC members offer Bridgeway
Fund shares at transaction fees ranging from $18 to $200. These fees vary and do
change. Some of the fee-paid marketplaces include: Ameritrade (800-669-3900), TD
Waterhouse (800-934-4443), Charles Schwab & Co (800-225-8570), Vanguard
(800-992-8327), Dreyfus (800-416-7113) and Fidelity (800-544-3902). Additional
information on fee-paid marketplaces is available on our web site,
www.bridgewayfund.com or by calling the Fund at 800-661-3550.
The minimum initial investment in any Fund Portfolio is $2,000. The minimum
subsequent investment is determined by the fund marketplace. The Fund reserves
the right to reject any order.
31
<PAGE> 32
Shareholders of the Fund who purchase shares through marketplaces or
members of NSCC should contact those organizations for redemption instructions.
DIRECT SHAREHOLDERS PRIOR TO JUNE 5, 1998
Shareholders who bought Fund shares directly from Bridgeway before June 5,
1998, may continue to make direct investments in any actively managed Portfolio.
Investments are subject to the initial minimum purchase of $2,000 per Portfolio
and closing restrictions as outlined elsewhere in this Prospectus. The minimum
subsequent investment is $500. Shareholders who purchased shares directly from
Bridgeway before June 5, 1998 may redeem shares by the method selected on the
original application: either telephone redemption or by a request in writing.
Telephone redemptions placed to the Fund at 800-661-3550 prior to the close of
the New York Stock Exchange (currently 4:00 p.m. Eastern Time) will receive that
day's closing price. Redemptions placed by written instructions may be mailed or
delivered to 5615 Kirby Drive, Suite 518 Houston, TX 77005-2448. Redemption
requests by fax or e-mail will not be accepted. The redemption request must
specify the number of shares or dollars to be redeemed and be signed by a
registered owner with the signature medallion guaranteed by a member of a
national securities exchange or a commercial bank. A medallion signature
guarantee is not the same as a notarization, and an acknowledgement by a notary
public is not an acceptable substitute. The request will not be accepted unless
it contains all required documents in proper form, as described above.
Additional documents may be required from corporations or other organizations,
fiduciaries or anyone other than the shareholder of record.
Redemption proceeds will be sent by check, to the address of record only.
Payment for shares redeemed will usually be mailed the day after such shares are
priced. In unusual circumstances this period may be up to 5 business days.
FREQUENT TRADING OF FUND SHARES
The Fund discourages frequent redemptions or using the Fund as a short-term
trading vehicle; it is intended for long-term investors. Shareholders who make a
practice of frequent buying and selling of Fund shares may not be permitted to
make additional investments in the Fund. Two times annually is considered
frequent and includes exchanges among Portfolios.
REDEMPTION OF VERY SMALL ACCOUNTS
In order to reduce the Fund's expenses, the Board of Directors is
authorized to cause the redemption of all of the shares of any shareholder whose
account has declined to a net asset value of less than $1,000, as a result of a
transfer or redemption. The Fund will give shareholders of very small accounts
60 days prior written notice in which to purchase sufficient shares to avoid
such redemption.
32
<PAGE> 33
REDEMPTION OF VERY LARGE ACCOUNTS
While a shareholder may redeem at any time without notice, it is important
for Fund operations that you call Bridgeway (at least a week in advance) before
you redeem a large dollar amount. We must consider the interests of all fund
shareholders and reserve the right to delay delivery of your redemption
proceeds up to seven days if the amount will disrupt a Fund's operation or
performance. If you redeem more than $250,000 worth of Fund shares within any
90-day period, the Fund reserves the right to pay part or all of the redemption
proceeds above $250,000 in kind, i.e., in securities, rather than in cash. If
payment is made in kind, you may incur brokerage commissions if you elect to
sell the securities for cash.
TAX-SHELTERED RETIREMENT PLANS
Shares of the Fund may be purchased for various types of retirement plans,
including Individual Retirement Plans (IRAs). For more complete information,
contact the marketplaces previously described.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund declares dividends from net investment income and distributions
from net capital gains annually and pays any such dividends and distributions
annually. All dividends and distributions in full and fractional shares of the
Fund will be reinvested in additional shares on the day that the dividend or
distribution is paid at the next determined NAV. A direct shareholder may submit
a written request to pay the dividend and/or the capital gains distribution to
the shareholder in cash. Shareholders at fund marketplaces should contact the
marketplace about their rules.
HOW DISTRIBUTIONS ARE TAXED
The tax information in this prospectus is provided as general information.
You should contact your tax adviser about the federal and state tax consequences
of an investment in any of the portfolios.
Except for retirement accounts such as IRA, Keogh, and other tax advantaged
accounts, all fund distributions you will receive are generally taxable to you,
regardless of whether you receive them in cash or reinvest them. They are
taxable to you in the year you receive them, except that if they are paid to you
in January, they are taxable as if they had been paid the previous year.
Income dividends and short-term capital gain distributions are generally
taxed as ordinary income. Long-term capital gain distributions are generally
taxed at long-term capital gains rates. The tax treatment of capital gains
distributions will not depend on when you bought your shares or whether you
reinvested your distributions.
33
<PAGE> 34
HOW TRANSACTIONS ARE TAXED
When you sell your Fund shares, you will generally realize a gain or loss.
These transactions, including exchange transactions between Portfolios, usually
have tax consequences. This will not be the case in tax-advantaged retirement
accounts.
TAXES WITHHELD
By law, the Fund must withhold 31% of your taxable distributions and any
redemption proceeds if you do not provide your correct taxpayer identification
number, or certify that it is correct, or if the IRS instructs the Fund to do
so.
INVESTMENT TECHNIQUES
The following table facilitates a comparison of investment techniques which
may be used by each portfolio.
<TABLE>
<CAPTION>
Ultra- Ultra- Micro- Ultra-
Aggressive Small Small Cap Large
Growth Company Index Limited 35 Index
------ ------- ----- ------- --------
<S> <C> <C> <C> <C> <C>
Borrowing (leveraging) Yes No No No **
Hedging Yes No No No No
Options (stock index) Yes No No No No
Futures (stock index) Yes * * * No
Options (other) Yes No No No No
Futures (other) Yes No No No No
Short-sales Yes No No No No
Warrants Yes No No No No
Foreign companies/ADRs Yes Yes No Yes No
Closed-end investment companies Yes No No No No
Lending securities Yes No Yes Yes Yes
New issues/Unseasoned companies Yes Yes Yes Yes No
High turnover Yes Yes No Yes No
Short-term trading Yes Yes No Yes No
</TABLE>
* The Ultra-Small Company, Ultra-Small Index and Micro-Cap Limited Portfolios
may only take temporary, long stock index futures positions to offset the effect
of cash held for future investing or for potential redemptions. No more than 35%
of portfolio net assets will be at risk in this limited use of stock index
futures.
** The Ultra-Large 35 Index Portfolio will only borrow on a temporary basis for
the purpose of selling short "against the box."
34
<PAGE> 35
TAX EFFICIENCY
The following discussion is not applicable to shareholders in tax-deferred
accounts, such as IRAs.
An important aspect of fund ownership in a taxable account is the tax
efficiency of the portfolio. A fund may have great performance, but if a large
percentage of that performance is paid in taxes, the purpose of active
management may be defeated. Tax efficiency is the ratio of after-tax total
returns to before-tax total returns. The first column of the following table
illustrates the tax efficiency of each Portfolio through June 30, 2000. It
assumes that a shareholder was invested in the Portfolio for the full period
since inception and had paid taxes at the current maximum rates of 39.6% for
income, 39.6% for short-term capital gains, and 20% for long-term capital gains
(those of more than one year). 100% tax efficiency means that the shareholder
had no taxable distributions and paid no taxes. This measure of tax efficiency
ignores potential future taxes represented by unrealized gains, stocks which
have gone up in value but have not been sold. It also ignores the taxes an
individual would pay if they sold their Bridgeway shares. The second column is
the rank of this tax efficiency among domestic equity funds. A rank of 1 means
the tax efficiency ranked in the top one percent of these funds.
BRIDGEWAY FUND TAX EFFICIENCY
<TABLE>
<CAPTION>
% Tax Efficiency 5-year
Portfolio Since Inception Percentile Rank(1)
---------- ---------------- ------------------
<S> <C> <C>
Ultra-Small Company 90.4% 43
Ultra-Small Index 100% NA
Micro-Cap Limited 96.3% NA
Aggressive Growth 95.3% 31
Ultra-Large 35 Index 99.0% NA
</TABLE>
(1) Morningstar is the source for data for this table.
Bridgeway pays attention to taxes in all its portfolios. However, the
active management style of Ultra-Small Company, Aggressive Growth, and Micro-Cap
Limited make these portfolios less tax-efficient than our index portfolios. Our
index portfolios are extremely tax efficient, even among index funds.
Neither the Ultra-Large 35 Index Portfolio nor the Ultra-Small Index
Portfolio has distributed capital gains in the three years since inception; we
expect none in the fourth year. However, The Ultra-Large 35 Index Portfolio does
distribute taxable dividend income. When Micro-Cap Limited Portfolio closes to
new investors, we would expect it to become less tax efficient than it has been
historically.
35
<PAGE> 36
FOR MORE INFORMATION
Bridgeway's STATEMENT OF ADDITIONAL INFORMATION, contains more detail about
policies and practices of the Fund and its adviser, Bridgeway Capital
Management. It's "the fine print," and is incorporated here by reference.
SHAREHOLDER REPORTS provide a closer look at the market conditions and
investment strategies that significantly affected the Fund's performance during
the most recent period. They provide details of our performance versus
performance benchmarks, our top ten holdings (for our actively managed
portfolios), a detailed list of holdings twice annually, and more about
Bridgeway's investment strategy. While these letters are usually a bit long (and
sometimes lively), the first two sentences tell you how the portfolio did in the
most recent quarter and the portfolio manager's assessment of it. You won't get
a lot of mumbo jumbo about the economy, claims of brilliance when it's going
well, or whitewashing performance when it's not going well. The shareholder
reports of the previous and current fiscal year are incorporated here by
reference, making them legally part of the prospectus.
Other documents, for example the CODE OF ETHICS, are also available.
TO CONTACT BRIDGEWAY FOR A FREE ELECTRONIC OR PRINTED COPY OF THESE
DOCUMENTS OR FOR YOUR QUESTIONS:
o Consult our website: www.bridgewayfund.com
o E-mail us at: [email protected]
o Write to us at: Bridgeway Fund, Inc
5615 Kirby Drive, Suite 518
Houston, TX 77005-2448
o Call us at: 800-661-3550x5, or in Houston at 713-661-3500x5.
INFORMATION PROVIDED BY THE SECURITIES AND EXCHANGE COMMISSION (SEC)
You can review and copy information about our Fund (including the SAI) at
the SEC's Public Reference Room in Washington D.C. To find out more about this
public service, call the SEC at 800-SEC-0330. Reports and other information
about the Fund are also available on the SEC's website
www.sec.gov/cgi-bin/srch-edgar?bridgeway. You can receive copies of this
information, for a fee, by writing the Public Reference Section, Securities and
Exchange Commission, Washington DC 20549-6009.
Bridgeway Fund's Investment Company Act file number is 811-08200.
BRIDGEWAY FUND, INC. INDEPENDENT ACCOUNTANTS
5615 KIRBY DRIVE, SUITE 518 PRICEWATERHOUSECOOPERS LLP
HOUSTON, TX. 77005-2448 1100 LOUISIANA STREET, SUITE 4100
713 661-3500 HOUSTON, TX. 77002
800 661-3550
36
<PAGE> 37
BRIDGEWAY FUND, INC.
Statement of Additional Information
Dated October 31, 2000
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, 2000, which incorporates this document by reference.
All five 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, and the 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
<TABLE>
<CAPTION>
Cross-reference
to page in the
Prospectus
Page
<S> <C> <C>
Investment Objectives and Policies 2 3, 8, 13, 18, 23
Risk Factors 3 4, 9, 14, 19, 24
Investment Restrictions 5 4, 9, 14, 19, 24
U.S. Government Securities 7 -
Foreign Securities 7 34
New Issues and Closed End Funds 7 34
Management 7 28
The Management Agreement 8 -
Security Selection Process 13 3, 8, 13, 18, 23
Disclaimer-CRSP 13 -
Portfolio Transactions and Brokerage 14 -
Net Asset Value 14 30
Redemption in Kind 15 33
Taxation 15 33
Dividends and Distributions 15 33
Performance Information 16 5, 10, 15, 20, 25
Allocation of Trades to Clients 17 NA
General Information 18 2, 36
Financial Statements 19 -
</TABLE>
1
<PAGE> 38
INVESTMENT OBJECTIVES AND POLICIES
The Fund was organized as a series fund with two initial portfolios or series:
Bridgeway Ultra-Small Company Portfolio and Bridgeway Aggressive Growth
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 five 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 Social Responsibility Portfolio, previously a series of Bridgeway
Fund, was merged into the Calvert Large Cap Growth Fund on October 31, 2000.
Bridgeway Capital Management is the subadviser of the Fund.
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. 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 Portfolio may use bank debt primarily for leverage.
Therefore, full consideration should be given to the risks inherent in the
investment techniques that the Adviser may use as outlined in "Risk Factors" in
the Prospectus and this Statement of Additional Information. Normally, this
Portfolio will invest in common stocks at a level equal to at least 100% of its
net assets. Portfolio exposure to market risk will vary over time. Using hedging
strategies, the Portfolio exposure to market risk may be negatively correlated
to the market, or may be as high as 150% of the market as measured by the
estimated portfolio beta. 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 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 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
2
<PAGE> 39
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 for the Ultra-Large Index Portfolio and 0.90
for the Ultra-Small Index Portfolio. 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, 2000 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. This
is not true in every time period, however. For example, from 1994 through 1998,
large stocks significantly outperformed small and ultra-small stocks.
Table A
Short-term Risk Characteristics of Various Asset Classes (1926-2000)
<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 one-year decline NA (9.6)% (8.1)% (43.3)% (58.0)% (45.2)%
Worst calendar year (1940 to 2000) NA (9.2)% (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
3
<PAGE> 40
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 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 are too risky for short-term
investments, but may be 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 Portfolio. The Aggressive Growth Portfolio may 1) borrow money from banks
up to 50% of the net assets, and 2) purchase and sell futures and options on
stock indexes, 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 Portfolio's assets and the net asset value of its shares. The
Ultra-Large 35 Index Portfolio may likewise borrow from banks, but only for the
purpose of making short-sales "against the box" (short-sales of securities
owned). This would happen only in the event a redemption would otherwise cause a
distribution of capital gains. The Aggressive Growth Portfolio's higher turnover
(more frequent trading) will expose it to increased cost and risk.
The Aggressive Growth Portfolio may also purchase warrants, invest up to 5% of
its assets in the securities of new issues or "unseasoned issues" 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.
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
Portfolio will further the Portfolio's 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 of general
4
<PAGE> 41
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 Portfolio 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 Portfolio is to manage these various
risks through diversification and hedging strategies to achieve a reasonable
return at a total risk equal to or less than that of the stock market (as
measured by certain statistical measures over periods of three years or more).
(Hereinafter, "stock market" will mean stock market as represented by the
Standard & Poor's Composite Stock 500 Index with dividends reinvested.) No
assurance can be given that these investment techniques will achieve the
objectives of higher return or equal risk.
A Portfolio's possible need to sell securities to cover redemptions could, at
times, force it to dispose of positions on a disadvantageous basis. This is
especially true for the Ultra-Small Index, Micro-Cap Limited, and Aggressive
Growth Portfolios. The 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 2000, this
Portfolio's turnover rate was 157%.
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.
5
<PAGE> 42
3. Issue senior securities, except that the Aggressive Growth Portfolio
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
6
<PAGE> 43
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.
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 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
7
<PAGE> 44
services to it, including the Fund's agreement with its Adviser, Custodian and
Transfer Agent. The day to day operations of the Fund are delegated to its
officers, subject to the investment objectives and policies of the Fund and to
general supervision by the Board of Directors.
The directors and officers of the Fund and of the Adviser, their business
address and principal occupations during the past five years are
<TABLE>
<CAPTION>
Position with the
Fund Principal Occupation
<S> <C> <C>
John N. R. Montgomery* President and President of the Fund since
Director 11/93 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 CPA with 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.
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 2000, the directors received the following compensation:
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement Estimated Annual Total
Compensation from Benefits Benefits Upon Compensation
Name of Director Fund Accrued Retirement from the Fund
<S> <C> <C> <C> <C>
Karen Gerstner $4,500 N/A N/A $4,500(1)
Miles Douglas Harper, III $4,500 N/A N/A $4,500(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
and Aggressive Growth Portfolios by Bridgeway Capital Management, Inc., (the
"Adviser") pursuant to an Investment Management Agreement (the "Agreement")
dated May 26, 1994; a second Investment Management Agreement dated May 26, 1997
addresses the management of the Ultra-Small Index Portfolio and the Ultra-Large
35 Index Portfolio; a third Investment Management Agreement dated June 3, 1998
addresses the management of the Micro-Cap Limited Portfolio. On May 18, 2000,
the three Agreements were extended for another
8
<PAGE> 45
year by the Board of Directors. On August 18, 1999 the Agreements were amended
to incorporate the following expense limitation provisions that had previously
been an undertaking of the Adviser.
The Adviser will reimburse expenses, if necessary, to ensure expense ratios do
not exceed the following fiscal year ratios:
<TABLE>
<S> <C>
Ultra-Small Company 2.00%
Aggressive Growth 2.00%
Ultra-Small Index 0.75%
Ultra-Large 35 Index 0.15%
Micro-Cap Limited 1.90%
</TABLE>
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,
Ultra-Small Company and Micro-Cap Limited Portfolios pay the Adviser a base fee
computed and payable on or promptly after the last market day of each month at
the following annual rate:
.9% of the value of the Portfolio's average daily net assets during
such month up to $250,000,000;
.875% of the next $250,000,000 of such assets; and
.85% of such assets over $500,000,000,
except that the fee for the Ultra-Small Company and Micro-Cap Limited Portfolios
during the period that a Portfolio's net assets range from $27.5 million to $55
million will be paid as if the Portfolio had $55,000,000 under management (that
is, $55 million times .009 equals $495,000), subject to a maximum 1.49% annual
rate.
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.
9
<PAGE> 46
The Aggressive Growth, 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 Portfolio 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 is the
CRSP Cap-Based Portfolio 9 Index with dividends reinvested. The performance rate
adjustment will be calculated at 4.67% (Aggressive Growth and 2.87% (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 performance period shall consist of the most recent five-year period ending
on the last day of the quarter (March, June, September, and December) that the
New York Stock Exchange was open for trading. For example, on February 15, 2006,
the relevant five-year period would be from Friday, December 29, 2000 through
Friday, December 30, 2005.
The performance of the benchmark index will be the 5-year percentage increase
(or decrease) in the S&P 500 Index /CRSP Cap-Based Portfolio 9 Index with
dividends reinvested. The Portfolio performance will be the percentage increase
(or decrease) of the portfolio net asset value per share over the performance
period and will be calculated as the sum of: 1) the change in the portfolio unit
value during such period, 2) the unit value of portfolio distributions from
income or capital gains (long or short term) having an ex-dividend date
occurring within the performance period and assumed to have been reinvested at
the net asset value on ex-date, and 3) the unit value of capital gains taxes
paid or accrued during the performance period of undistributed realized capital
gains, if any. Thus, the Fund performance will be in accordance with SEC
standardized total return formula.
The adjustment to the Basic Advisory Fee will not be cumulative. For example, an
increased fee could result even though the performance of the Fund over some
period of time shorter than the Performance Period has been behind that of the
Index.
As indicated above, the Fund's expenses (including the monthly Basic Advisory
fee) will be accrued daily. The performance adjustment for each performance fee
period will be computed monthly and accrued daily in the subsequent monthly
period and taken into account in computing the daily net asset value of a Fund
Portfolio's share. However, the expenses in excess of any maximum expense
limitation that is assumed by the Fund's Adviser if any, shall not be accrued
for the purpose of computing the daily net asset value of a Fund share.
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:
10
<PAGE> 47
<TABLE>
<CAPTION>
Waived
Advisory Fee Expense Advisory Waived
Portfolio By Fiscal Year Per Contract Reimbursement Fees Accounting Fee
<S> <C> <C> <C> <C>
Ultra-Small Company
6/30/00 $495,000 $ 0 $ 0 $ 0
6/30/99 $495,000 $ 0 $86,675 $ 0
6/30/98 $495,000 $ 0 $ 0 $ 0
Ultra-Small Index
6/30/00 $ 10,629 $4,814 $10,629 $10,006
6/30/99 $ 6,753 $8,015 $ 6,753 $ 7,861
6/30/98 $ 5,382 $1,926 $ 5,382 $ 3,386
Aggressive Growth
6/30/00 $308,915 $ 0 $ 2,632 $ 0
6/30/99 $ 14,577 $ 0 $ 0 $ 0
6/30/98 $ 39,058 $ 0 $ 0 $ 0
Ultra-Large 35 Index
6/30/00 $ 4,675 $4,023 $ 4,675 $ 9,838
6/30/99 $ 1,754 $6,444 $ 1,754 $ 8,160
6/30/98 $ 106 $9,077 $ 106 $ 3,442
Micro-Cap Limited
6/30/00 $283,892 $ 0 $83,409 $ 0
6/30/99 $ 99,314 $ 0 $ 0 $ 0
6/30/98 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
and 0.15% for Ultra-Large Index.
In addition to the fee payable to the Adviser, the Fund is responsible for its
operating expenses, including: (1) the charges and expenses of any custodian or
depository appointed by the Fund for the safekeeping of its cash, securities and
other property, (2) the charges and expenses of bookkeeping personnel, auditors,
and accountants, computer services and record keeping, (3) the charges and
expenses of any transfer agents and registrars appointed by the Fund, (4)
brokers' commissions and issue and transfer taxes chargeable to the Fund in
connection with securities transactions to which the Fund is a party, (5) all
taxes and corporate fees payable by the Fund to federal, state or other
government agencies, (6) fees and expenses involved in registering and
maintaining registrations of the Fund and of its shares with the Securities and
Exchange Commission and qualifying its shares under state or other securities
laws, including the preparation and printing of prospectuses used for these
purposes and for shareholders of the Fund, (7) all expenses of shareholders' and
directors' meetings and of preparing and printing reports to shareholders, (8)
charges and expenses of legal counsel for the Fund in connection with legal
matters relating to the Fund, including without limitation, legal services
rendered in connection with the Fund's corporate existence, corporate and
financial structure and relations with its shareholders, registrations and
qualifications of securities under federal, state and other laws, issues of
securities and expenses which the Fund has herein assumed, (9) compensation of
directors who are not interested persons of the Adviser, (10) interest expense,
(11) insurance expense, and (12) association membership dues.
The Adviser will not be liable to the Fund for any error of judgment by the
Adviser or any loss sustained by the Fund except in the case of a breach of
fiduciary duty with respect to the receipt of compensation for 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."
11
<PAGE> 48
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 May 18, 2000 for another year, and they will
continue in effect through June 30, 2001. 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 30 of the
prospectus, the Adviser has a unique mission statement that sets it apart from
others in the industry:
OUR MISSION is to:
o support charitable service,
o nurture educational causes, and
o improve the quality of community life.
o oppose and alleviate the effects of genocide and oppression,
OUR ROLE in this effort is primarily, but not exclusively, a financial
one. As stewards of others' money, we strive to:
o uphold the highest standards of INTEGRITY.
o maintain a long term risk-adjusted investment PERFORMANCE
RECORD in the top 5% of investment advisers,*
o provide extraordinary SERVICE QUALITY,
o achieve a superior (efficient) COST structure, and
OUR GREATEST RESOURCE is people. Recognizing this, we strive to:
o create a positive, fun, and challenging atmosphere,
o provide fair compensation commensurate with performance,
o give regular, peer feedback,
o spend resources lavishly on hiring and training, and
o value the family.
*The Adviser can not promise future performance levels, nor do past results
guarantee future returns. However, the Adviser and the Fund have committed to
clearly communicating performance versus industry benchmarks in each quarterly
report to shareholders.
The Adviser is also committed to donating a majority of its own investment
advisory fee profits to charitable and non-profit organizations. To maximize
this objective, the adviser seeks a superior cost structure. There are no
expensive perks or luxurious offices. The quantitative investment methods used
do not require a large research staff. Employees are paid commensurate with
performance and market salary 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.
12
<PAGE> 49
Compensation Disclosure
Bridgeway annually discloses the compensation of its portfolio manager, John
Montgomery. The following amounts are taken from Bridgeway Capital Management's
unaudited financial records and John's W-2:
<TABLE>
<CAPTION>
Total Capital Total Net
Year Compensation Contributions Cash Flows
$
<S> <C> <C> <C>
1993 (211,000) (211,000)
1994 (217,000) (217,000)
1995 70,284 (10,000) 60,284
1996 29,833 (12,000) 17,833
1997 158,041 158,041
1998 93,096 93,096
1999 222,771 222,771
</TABLE>
Total compensation for 1999 in the table above includes SEP IRA contributions of
$2,868, shareholder distributions of $32,107 and is net of a final loan
repayment of $36,625. John's compensation is affected by the Fund Portfolio's
performance in two ways. First, Aggressive Growth Portfolio and Micro-Cap
Limited Portfolio have performance based fees which range from 0.2% to 1.6% of
net assets, depending on trailing five-year performance relative to a market
benchmark. This dramatically affects the total revenues to and profits of
Bridgeway Capital Management, of which John is majority shareholder. The second
and more direct way that John's compensation is tied to Fund performance is
through his salary. Salaries for all full-time Bridgeway employees, including
John, have a component tied to profitability of the Adviser and a component tied
to personal performance. The profitability of the Adviser is a function of
Portfolio performance through the performance-based fee. John's personal
performance is a function of specific goals, which are integrity (weighted 10%),
investment performance (weighted 50%), efficiency (weighted 10%), service
(weighted 20%), and asset growth (weighted 10%). The investment performance of
the Portfolios thus comprises half of the evaluation score that determines his
salary.
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,
13
<PAGE> 50
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.
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:
<TABLE>
<CAPTION>
Brokerage Commissions Paid
Portfolio 6/30/00 6/30/99 6/30/98
<S> <C> <C> <C>
Ultra-Small Company $44,817 $56,559 $86,896
Ultra-Small Index $2,053 $1,426 $4,078
Micro-Cap Limited $18,875 $14,008 n/a
Aggressive Growth $26,383 $9,779 $9,779
Ultra-Large 35 Index $966 $652 $86
$93,094 $82,424 $100,839
</TABLE>
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.
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<PAGE> 51
Portfolio securities that are principally traded on a national securities
exchange or the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") are valued at their last sale on the exchange on which they
are principally traded prior to the close of the New York Stock Exchange or, in
the absence of recorded sales, at their current bid price (long position) or
asked price (short positions.) Other securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith using methods approved by the Board of Directors.
REDEMPTION IN KIND
If the Board of Directors determines that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment wholly in
cash, the Fund may pay the redemption price in part by a distribution in kind of
securities from the portfolio of the Fund, in lieu of cash. The Fund has elected
to be governed by Rule 18F-1 under the 1940 Act pursuant to which the Fund is
obligated to redeem shares solely in cash up to the lesser of $250,000 or one
percent of the net asset value of the Fund during any 90 day period for any one
shareholder. Should redemptions by any shareholder exceed such limitation, the
Fund will have the option of redeeming the excess in cash or in kind. If shares
are redeemed in kind, the redeeming shareholder would incur brokerage costs in
converting the assets into cash.
TAXATION
For the current and all subsequent fiscal years, the Fund intends to elect to be
and to qualify for treatment as a regulated investment company ("RIC") under
Subchapter M of the Internal Revenue Code (the "Code"). In each taxable year
that the Fund so qualifies, the Fund will be relieved of federal income tax on
that part of its investment company taxable income (consisting generally of
interest and dividend income and net short term capital 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.
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<PAGE> 52
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 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.
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<PAGE> 53
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 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 five
portfolios of Bridgeway Fund, Calvert Large Cap Growth Fund and private clients
whose assets recently totaled about $25 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.
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<PAGE> 54
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 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, 2000.
<TABLE>
<CAPTION>
Percentage Ownership
----------------------------------------------------
Aggres- Social Ultra- Ultra- Ultra- Micro-
sive Respon- Small Small Large 35 Cap
Name Address Growth sibility Comp. Index Index Limited
<S> <C> <C> <C> <C> <C> <C> <C>
Donaldson, Lufkin P. O. Box 2052 5.9% 10.5% 8.1% 11.3% 33.1%
& Jenrette Jersey City, NJ 07303
Securities Corp.
E*Trade Securities Four Embarcadero Pl., 12.7% 13.5% 23.6% 15.1% 14.6%
2400 Geng Rd
Palo Alto, CA 94303
Key Trust Co. P O Box 94871 5.2%
Cleveland, OH 44101
National Financial One World Fin'l Center 24.8% 32.8% 10.1% 19.0% 40.9% 12.5%
Services Corp. New York, NY 10281
National Investors 55 Water Street 10.8% 10.4% 38.0% 30.2% 11.9%
Services Inc. 32nd Floor
New York, NY
10041-3299
----- ----- ----- ----- ----- -----
Total 54.2% 67.2% 10.1% 93.9% 97.5% 72.1%
All officers/directors 0.4% 0.9% 0.4% 0.0% 0.2% 0.0%
</TABLE>
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<PAGE> 55
Subsequent to year end, the Social Responsibility Portfolio was merged with the
Calvert Large Cap Growth Fund. See the related subsequent event footnote for
additional information.
FINANCIAL STATEMENTS
The Fund's 2000 Annual Report to Shareholders was mailed to shareholders on
August 29, 2000; 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.
19
