<PAGE> 1
January 25, 2000
Dear Fellow Social Responsibility Shareholder,
This was our best quarter since inception--up 40.7%. We also beat the S&P
500 Index return of 15.0% by the widest margin since inception. To say I'm
pleased would be a gross understatement. What a way to end the century.
Someone please pull me down off the ceiling. (Me, not the Portfolio, thank
you very much.)
Something to Celebrate
Most of you know I hate underperforming any relevant market benchmark over
any time period, especially on a cumulative basis. While we have been
beating our "growth and income fund" benchmark of peer performance for some
time now, we had not previously been able to overcome the amazing
performance of the largest U.S. stocks on a cumulative basis. There were
several reasons for this. First, the largest U.S. companies have dominated
performance over the last five years. While large companies are the
"staple" among our Portfolio stocks, we also invest in a smattering of
small companies (typically 5 to 20% of the Portfolio) as well as an
occasional foreign stock listed on an American exchange. This
diversification, while successful in lowering our historical risk, has been
a drag on our returns for some of our 5+ year history. Second, we had to
overcome our 1.5% expense ratio to beat the S&P 500 benchmark. Third, we
learned that the universe of about 700 companies in our social criteria
database was more constraining in the application of our financial models
than we had originally estimated. For several years now we have
supplemented the Council on Economic Priority social database with our own
social research, which has helped to expand the selection and improve
returns.
I am now very happy to report that this quarter we took back the cumulative
lead over the S&P 500 Index (including dividends). Only 17% of domestic
stock funds have accomplished this over the last five years. Bridgeway
Social Responsibility ranks 3rd (the top percentile) of 403 growth and
income funds and 2nd of 23 socially responsible domestic equity funds over
this time period. We have accomplished this performance with greater tax
efficiency than any fund tracking the S&P 500 Index. (That's right, your
Portfolio has been more tax efficient than the S&P 500 index funds, in
spite of the fact that it has a higher turnover and is actively managed.)
As detailed below, we also have substantially less risk than similar funds
according to Morningstar statistics and very slightly less (but not
statistically significant) risk relative to the S&P 500 Index. (Please see
"A Note on Risk" on the next page for a definition of risk used in this
context.) This combination is truly something to celebrate.
Hmmm. . . More return. Less risk. Greater tax efficiency. I am very proud
of our record. Past performance does not guarantee future results. These
results are measured over a longer historical period; shorter periods of
time will reflect different results.
[GRAPH SHOWING GROWTH OF $10,000 INVESTED FROM 8/5/94 TO 12/31/99]
<PAGE> 2
A Note on Risk
The two risk measures referred to in the previous section are beta
("market-related risk" or the amount a portfolio goes up and down relative
to the market) and the total of negative quarterly returns ("downside risk"
or how much it hurts when the market goes down). It is important to note
that while the Portfolio has exhibited less risk by these measures than the
market over the last five years, it does not guarantee anything about the
future risk of the Portfolio. The risk of an investment strategy does tend
to be more constant over time than returns, however. Our investment
objective also states that we seek to roughly match the total risk
characteristics of the S&P 500 over longer periods of three or more years.
Thus, the Portfolio is not specifically concerned with short-term (monthly
or quarterly) risk, but with longer-term risk. This is commensurate with
our premise that this Portfolio is meant for investors with longer-term
investment goals.
Performance Summary
TRANSLATION: We had a great December quarter. Following a good first nine
months of the year, we more than doubled the return of our performance
benchmarks in calendar year 1999. This was enough to put us ahead of the
S&P 500 by an average of three percent per year since inception.
The graph on the previous page presents the quarterly growth of $10,000
invested in the Social Responsibility Portfolio since inception on August
5, 1994 versus a theoretical investment in the S&P 500 Index, our primary
market benchmark, and Lipper Growth & Income Funds, our benchmark of
similar funds. The following table presents the SEC standardized
performance for the December quarter, one year, five years and
life-to-date.
<TABLE>
<CAPTION>
Dec. Qtr. 1 Year 5 Year Life-to-Date
10/1/99 1/1/99 1/1/95 8/5/94
to 12/31/99 to 12/31/99 to 12/31/99(3) to 12/31/99(3)
----------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
Social Responsibility Portfolio 40.7% 49.4% 31.8% 29.4%
S&P 500 (large stocks)(1) 14.2% 20.0% 28.3% 26.3%
Lipper Growth and Income Funds(2) 11.0% 14.0% 21.72% 19.7%
</TABLE>
(1) The S&P 500 is an unmanaged index of large stocks with dividends
reinvested. (2) The Lipper Growth and Income Funds reflect the aggregate
record of domestic growth and income mutual funds as reported by Lipper
Analytical Services, Inc. (3) Returns for periods longer than one year are
annualized. Past performance does not guarantee future returns.
Detailed Explanation of Quarterly Performance
TRANSLATION: Our Portfolio held 41 stocks at the end of the quarter, which
is somewhat more "concentrated," or focused on fewer stocks than the
majority of mutual funds. Typically then, unusual performance such as the
most recent quarter can be explained by a few individual stocks. It is
certainly the case this quarter.
As discussed in my last shareholder letter, two of our stocks, Qualcomm (a
telecommunications firm) and Unify (a software developer for Internet
applications) had appreciated to the point that each represented about 9.7%
of Portfolio net assets. To keep company-specific risk (the risk that a
single company stock will plummet and disproportionately adversely affect
our returns) reasonable, we typically trim a stock in this Portfolio if
appreciation takes a stock past 10% of net assets. We rarely invest over 5%
of net assets in a stock at the time of purchase; Qualcomm was less than 5%
at the date of purchase, and Unify was less than 2%. Our models still gave
both of these stocks strong buy signals during the quarter, and they
continued to soar. Fortunately (based on recent data), our internal
diversification rules have served us well. We sold 61% of our position in
Unify mid-way though the quarter. While this was not the peak price, it was
higher than the price at the end of the quarter, and it did significantly
reduce what would
2
<PAGE> 3
have been the volatility of the Portfolio in the last month. Our timing on
Qualcomm was even better. We sold a quarter of our position in Qualcomm
within hours of the (current) all-time high. This action is not to say that
these stocks will not eventually make new highs (I hope they do; they're
still our two largest positions), but we are also concerned with risk
management in this Portfolio.
So how did they do? Wow! Three stocks appreciated more than 50% during the
quarter:
<TABLE>
<CAPTION>
Rank Description Industry % Gain
---- ----------- -------- ------
<S> <C> <C> <C> <C>
1 Qualcomm Inc Telecommunications 272.4%
2 Unify Corp. Data Processing/Software 143.3%
3 Home Depot Inc. Retail Stores 50.3%
</TABLE>
Qualcomm's rise during the year was relentless, and it added significantly
to our return as our largest holding in the December quarter. Unify was
finally "discovered" by Wall Street in September. These two stocks
accounted for 89% of our quarterly return. They carried the day. You may
remember that we almost sold Home Depot six months ago due to criticism of
using lumber from suppliers that did not have adequate environmental
controls (clear-cutting and use of old growth woods). To the company's
credit, they reversed their policy in a display of leadership in their
industry. We held, and I'm glad we did.
Not all of our stocks did so well in the quarter. Horizon Organic, profiled
in a previous letter, declined 33% when the company indicated increased
competition and heavier spending to garner market share. VISX lost the
first round of a patent lawsuit protecting its primary product and shed 41%
of its value in one day. WRPC, a very small position in a small latex glove
company, continued its decline (43% in the quarter) on continuing poor
financial news. Fortunately, Horizon Organic and WRPC were smaller
diversifying positions. VISX cost the Portfolio more; it was our fourth
largest position at the beginning of the quarter.
Top Ten Holdings
Our ten largest portfolio positions on December 31, 1999 continue to
reflect our concentration in Qualcomm, even after our recent substantial
trimming. We plan to continue to trim this holding. With the recent
tremendous appreciation of our technology stocks, technology has replaced
retail stocks as our largest sector representation. However, I plan to
continue to trim our exposure.
<TABLE>
<CAPTION>
Percent of
Rank Description Industry Net Assets
---- ----------- -------- ----------
<S> <C> <C> <C> <C>
1 Qualcomm Telecommunications 17.7%
2 Unify Corporation Data Processing/Software 5.9%
3 Bankamerica Corporation Banking 4.4%
4 Home Depot, Inc. Retail Stores 4.0%
5 Applied Materials Electronics/Electric 4.0%
6 Microsoft Corp Data Processing/Software 3.6%
7 Siebel Systems Inc Data Processing/Software 3.1%
8 Xerox Corporation Electronics/Electric 3.0%
9 Fannie Mae Finance 3.0%
10 Pepsico, Inc. Beverages 2.9%
-----
Total 51.6%
</TABLE>
3
<PAGE> 4
Disclaimer
The following is a reminder from the friendly folks at your fund who worry
about liability. The views expressed here are exclusively those of Fund
management. They are not meant as investment advice. Any favorable (or
unfavorable) description of a holding applies only as of the quarter end,
December 31, 1999; security positions can and do change thereafter.
How Bridgeway Social Responsibility Got Its Fifth Star Back
At the end of December, our annual and cumulative total return was strong
enough that our Portfolio ranked in the top 10% of equity funds on a
risk-adjusted basis according to Morningstar. This means we are once again
a "five-star" fund.
When I was about 8, my father taught me the rules of a card game. People
played this game by differing sets of rules, so you needed to know the
"house rules." One of his was "the winner deals." A corollary to this rule,
according to him, was the key to winning the game. "Just keep the deal."
This seemed straightforward enough, but it provided no guidance as to how
one went about doing that.
Since more than three-fourths of all new money invested in mutual funds is
invested in four and five-star funds, earning and keeping stars is a major
goal of many fund families. (We like five stars too, but it's a very
indirect goal and does not line up directly with our investment objective;
we are concerned more with the long-term than short-term.) At any rate, I
finally figured out how to keep five stars. Just stay ahead of the S&P 500.
In other words, just keep the deal.
The Tide Has Turned--Maybe
One of the most statistically significant findings among research on small
companies is that small stocks tend to outperform large ones if they also
did the year before. Likewise, there is a statistical persistence for large
company dominance, which has certainly been true for nearly the entire
period of our Portfolio since inception in 1994. Large companies
appreciated more than small ones in 1994, 1995, 1996, 1997, and 1998. This
is the longest "run" for large stocks in the last seven decades. However,
small stocks edged out large stocks in 1999, and I believe this is bullish
for small stocks relative to large ones. Keep in mind, however, that small
stocks almost always decline farther than large ones in a market
correction.
Based on the outlook for the year 2000, I plan to keep the mix of Portfolio
assets close to my maximum 20% exposure to small stocks (an internal
policy, not an investment restriction). At the end of December, small
stocks comprised 16% of the Portfolio, somewhat less than the beginning of
the quarter, due to our trimming of Unify. I still consider the Portfolio
to be primarily a large company one, but we diversify to make it a
well-rounded investment. This strategy also seems appropriate given
Bridgeway's specific expertise in small-company investing.
Corporate Giving
We care about corporate giving by the companies we own, just as we do about
our own giving. The Council on Economic Priorities (CEP) and Worth Magazine
recently conducted a joint study on corporate giving and recognized Dayton
Hudson, one of our holdings since 1997, as exemplary in this area. The
company's retail division pledges over $1 million a week to the communities
in which they operate. We think this is not only good for the communities,
but also good for the company. We applaud Dayton Hudson's commitment to
corporate giving.
Here's another interesting statistic from the CEP/Worth study: four of the
ten most generous companies in the study are represented in our Portfolio:
Bank of America, Dayton Hudson, Johnson & Johnson, and Chase Manhattan
Bank.
4
<PAGE> 5
We Survived Y2K
TRANSLATION: We didn't get overly excited about Y2K at Bridgeway; we just
kept looking for the next great stock.
In previous letters I explained why we would not analyze the Y2K readiness
of our individual holdings. (However, we did take precautions to prepare
our own operations.) Some people were concerned that there would be major
economic disruptions as a result of computers not being able to read or
make calculations based on dates in the new century. My reasoning for
ignoring this problem was two-fold.
First, my models don't have a Y2K variable, so it's impossible to take such
things into consideration quantitatively. Second, moving money because of a
possible computer problem seemed just another way to time the market, which
neither I - nor the vast majority of people who try - do successfully. A
(very) few Bridgeway shareholders did sell everything early in the quarter,
hoping to invest again during a big downturn near the end of the year.
Based on our recent performance numbers, these people missed quite a bit of
investment appreciation.
If there is a "moral" to this story, I think it would be to concentrate on
what's important in the long term, and to resist the many ways to "time"
the market. I plan to be fully invested at the next market correction, and
undoubtedly my fund investments will also fall. I just strive to build up a
cushion before it happens. 1999 gave us a pretty thick cushion.
Tax Efficiency Update
TRANSLATION: All of Bridgeway's portfolios rank in the top half among
comparable funds in the area of tax efficiency. However, the Social
Responsibility Portfolio has been the most efficient of Bridgeway's
actively managed portfolios. It has even been more efficient than most
(non-Bridgeway) index funds. What's working in our favor is significant
asset growth, our tax management "on the margin" (or wherever I feel it
will not hurt our overall returns), and our below-average turnover.
The following table indicates the tax efficiency over the last one- and
five-year periods:
<TABLE>
<CAPTION>
% Tax
Efficiency 1-year 5-year
Since Percentile Percentile
Portfolio Inception Rank Rank
--------- --------- ---- ----
<S> <C> <C> <C>
Social Responsibility 98.2% 17th 4th
Aggressive Growth 94.1% 46th 17th
Ultra-Small Company 89.8% 1st 38th
Ultra-Small Index 100% 1st NA
Micro-Cap Limited 96.1% 26th NA
Ultra-Large 35 Index 99.1% 21st NA
S&P 500 Fund 96.5%* 32nd 5th
Russell 2000 Index Fund 87.2%* 65th 8th
*Based on the last five year period.
</TABLE>
The second column of the table is calculated by dividing the total
cumulative return after federal taxes (at the highest current tax rates) by
the total return before taxes. For example, a taxpayer in the highest tax
bracket would have kept 98.2% of the Portfolio's total return since
inception on August 5, 1994, based on current tax rates of 39.6% for income
and 20% for long-term capital gains. The third column makes the same
calculation for calendar year 1999 only and ranks this tax efficiency
compared to all domestic equity funds. The one-year column is only of mild
interest, since there is frequently a "lag" between the return earned and
taxable distributions made. (In the worst case, a portfolio may make a
substantial
5
<PAGE> 6
distribution from its prior years' appreciation in a year when the total
return is actually negative; this happened in 1998 in the Ultra-Small
Company Portfolio.) The final column compares our tax efficiency to other
funds for a longer (five-year) period of time. This is the column that I
believe best measures my longer-term report card on tax efficiency.
Portfolio Turnover
TRANSLATION: The turnover figure reflects the amount of buying and selling
in a mutual fund. Turnover can be detrimental because the Portfolio must
pay "transaction costs" each time it buys or sells; it can also increase
the amount of taxes you pay (in a taxable account only). On the other hand,
turnover is good if the securities I buy go up more than that ones I sell.
So far the benefits have outweighed the disadvantages for Social
Responsibility.
In my last letter I committed to discussing various sections and specific
numbers from our prospectus. This quarter I will answer these questions
about portfolio turnover: "What does this number mean?" "How does it
compare with similar funds?" "Why should I care?" "Is our turnover good or
bad?" I asked the same kinds of questions as a mutual fund shareholder
before becoming a mutual fund manager. Trying to get answers was usually
pretty frustrating, so I'll try to make it easier for you!
The "portfolio turnover rate" for June 30, 1999 appears as the last line in
the Financial Highlights table on page 26 of the prospectus. The December
31, 1999 rate appears as the last line in the Financial Highlights schedule
in the financial statements attached.
What does "portfolio turnover" mean?
The Portfolio turnover rate indicates the number of portfolio holdings that
are bought and sold in a year relative to the size of the portfolio. A
turnover rate of 100% is equivalent to the sale and repurchase of all of
the securities in the portfolio one time during the year. It is calculated
by dividing the dollar value of all Portfolio sales (or purchases, if this
is a lower number) by the average net assets over the course of the period
in question. Social Responsibility's recent turnover rate was 86%, somewhat
higher than in prior years.
How does the turnover of the Social Responsibility Portfolio compare with
that of similar funds?
The average turnover for the Social Responsibility Portfolio in prior
fiscal years is 58%, slightly less than the average 63% rate among all
growth and income mutual funds and significantly less than the 88% rate
among all domestic equity funds, based on recent data from Morningstar.
Is Social Responsibility's turnover good or bad?
Some of our turnover is created by harvesting losses (selling positions
that have declined in value). This is good because it offsets other taxable
gains. I have found that harvesting losses also slightly boosts returns for
our investment style in most market environments. Any turnover for any
reason adds to transaction costs, and this is bad. Overall, I would argue
strongly that our turnover has added value so far. My "proof" is that we
have beaten the returns of an index strategy both before and after taxes on
a cumulative basis. This has not been true in every shorter time period,
however, which is one reason I think this Portfolio is appropriate only for
long-term investors.
Why should I care?
Turnover can be either good or bad. It is bad when the buying and selling
generates additional net costs for the portfolio that are not offset by the
additional return generated by the newly-purchased security. In this
Portfolio, I estimate the cost of an average trade at about 0.33% of the
trade value. Thus, to buy and sell $100,000 of stock costs the Portfolio
about $600 or $100,000 times 2 times .0033. In a future letter, I'll
explain how I estimate this cost and what we do to minimize it.
6
<PAGE> 7
[Footnote: For now, suffice it to say that these costs include broker
commissions, stock spreads (the difference between the price for which you
can sell a stock and the price for which you can buy it), impact cost (the
additional premium you pay if you buy more than the "offered" number of
shares and you want to buy quickly), and opportunity cost (or the cost of
being so stingy with the price you are willing to pay that a great
investing opportunity simply passes you by).]
At any rate, when I buy and sell a stock, the new stock has to return 0.7%
more over the period I hold it than the stock I sold. Otherwise, the
Portfolio would have come out ahead just "staying put." One way to measure
the effectiveness or "value added" of a portfolio manager is to compare the
portfolio performance with what the performance would have been if there
had been no trading during the year. We'll do this analysis in a future
letter too. Our active trading added quite a bit of value in 1999.
Apart from the additional costs implied by turnover, there are also tax
implications if your shares are held in a taxable account. (If they are in
an IRA, there are no tax implications.) For example, take two funds, A and
B. Assume that both funds appreciate 10%/year (close to the long-term rate
for large stocks), but fund A distributes all of its gains each year, half
in the form of short-term capital gains (taxed at 39.6%) and half in the
form of long-term capital gains (taxed at 20%). Fund B has no turnover and
incurs no gains. Further assume that the expenses of both funds equal the
dividend income, so there are no "ordinary" or "income" fund distributions.
Finally, assume that both funds are held 20 years until retirement, at
which time a person's tax rate falls from 39.6% to, say, 25%. Then $10,000
invested in Fund B grows to $67,275 in 20 years. After paying the taxes of
$14,319 to withdraw this money, an investor is left with $52,956.
[footnote: You can avoid these taxes by dying at year 20, at which point
the basis is increased to $67,275; then you can celebrate having a lot of
money but no need to spend it.] In Fund A, you pay some taxes each year
equal to a total of $12,243, but because Uncle Sam has had use of this
money each year rather than you, your nest egg only grows to $38,842. Fund
B grows 36% more to $52,956 after all taxes are paid. So the less tax
efficient portfolio has an after-tax annualized return of 7.0% while the
more tax efficient portfolio has an after-tax annualized return of 8.7%.
(If the person were still taxed at the highest 39.6% rate after 30 years,
then Fund B would have grown to 15% more than Fund A for an after-tax
annualized return of 7.8%.)
The bottom line is that turnover can eat very significantly into returns,
due to the higher trading costs and due to the higher tax bill. A very
actively managed portfolio must compensate for this large difference with
clearly superior stock picking. Marginally better stock picking just won't
do if you hold shares in a taxable account.
If all this talk of taxes and trading costs has turned you off to active
management, go back to page one and study the returns. So far, we have
compensated our long-term investors for both higher trading costs and
higher taxes (relative to an index fund of the same size stocks), but we
have not done so in each individual year.
Bridgeway Makes Mutual Funds Magazine's list of Top Fund Groups
I am pleased to report that Bridgeway was included in Mutual Fund
Magazine's list of the top 30 fund groups in 1999 on the basis of peer
group performance. According to the magazine, Bridgeway's six funds
outperformed their peer group by an average of 12.3% last year.
Bridgeway's Smallest Holding
With each quarterly letter, I discuss our largest holdings, since these are
the most likely to have a big impact on our returns. With this letter I'd
like to talk about our smallest holding, also significant, but for a
different reason.
The smallest holding among the six Bridgeway portfolios is 10 shares of
Kirby Industries, previously an oil exploration firm, now an oil
transportation firm, held in the Aggressive Growth Portfolio. It represents
one one-thousandth of one percent of net assets. Though an economic asset,
its purpose is primarily symbolic. My father worked for this company from
the time I was one year old until he died
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<PAGE> 8
when I was twenty-seven. When I see the KEX symbol among my holdings, it
reminds me of my father and many others who created the foundation upon
which I build. Nothing of significance that I have accomplished at
Bridgeway has been done alone. I'm blessed by the energetic and talented
people I work with, by my family who supports me in my work, by my parents
and teachers who gave me the tools and resources to found this venture, and
by you who allow me to be steward of your money.
As I write this part of my letter two days before the century's end, I hope
and pray you will continue to find your relationship with Bridgeway a
positive and rewarding one in the years ahead.
Conclusion
As always, I appreciate your feedback. We take shareholder's comments
seriously and have made continuing improvements because people have taken
the time to write or call us. Please keep your ideas coming.
Sincerely,
/s/ JOHN MONTGOMERY
John Montgomery
8
<PAGE> 9
BRIDGEWAY FUND, INC.
SOCIAL RESPONSIBILITY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS (unaudited)
Showing percentage of total net assets
December 31, 1999
<TABLE>
<CAPTION>
Industry Company Shares Value
-------- ------- ------ -----
<S> <C> <C>
Common Stock - 92.4%
Automobiles - 1.4%
Ford Motor Company 1,100 $ 58,644
Banking - 8.1%
BankAmerica Corporation 3,831 192,268
Fleetboston Financial
Corporation 106 3,690
MBNA Corporation 1,687 45,971
The Chase Manhatten
Corporation 1,400 108,763
--------
350,692
Beverages - 2.9%
Pepsico Inc. * 3,582 126,266
Data Processing - Computer Systems - 3.1%
Siebel Systems, Inc. * 1,600 134,400
Data Processing - Software & Services - 10.8%
Adobe Systems Inc. * 850 57,163
Microsoft Corporation * 1,320 154,110
Unify Corporation * # 9,340 255,683
--------
466,956
Drugs-Generic and OTC - 3.4%
Merck & Co., Inc. 390 26,203
Pfizer Inc. 1,830 59,361
Schering-Plough Corporation 1,476 62,546
--------
148,110
Electronics/Electric - 6.9%
Applied Materials, Inc. * 1,350 171,028
Xerox Corporation 5,726 129,909
--------
300,937
Finance - 6.2%
American Express Company * 650 108,063
Fannie Mae 2,071 129,308
SLM Holding Corporation 770 32,533
--------
269,904
Food - 3.0%
Ben & Jerry's Homemade, Inc. * 2,150 53,481
Green Mountain Coffee, Inc. * 7,700 60,638
Horizon Organic Holding
Corporation * 2,100 15,750
--------
129,869
Health Care Facilities - Services - 1.6%
PacifiCare Health Systems, Inc. * 1,340 71,020
Leather & Shoes - 2.3%
The Timberland Company 1,880 99,405
Leisure-Amusement - 2.3%
Time Warner Inc. 1,400 101,238
Machinery - 1.9%
VISX, Inc. * 1,600 82,800
Medical Equipment/Supplies - 1.6%
Johnson & Johnson 640 59,680
WRP Corporation * 4,000 8,000
--------
67,680
Retail Stores - 13.1%
Dayton Hudson Corporation 1,100 80,781
Safeway Inc. * 1,424 50,908
Spiegel, Inc. * # 8,900 62,578
Starbucks Corporation * 3,400 82,450
</TABLE>
<PAGE> 10
BRIDGEWAY FUND, INC.
SOCIAL RESPONSIBILITY PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS (unaudited), continued
Showing percentage of total net assets
December 31, 1999
<TABLE>
<CAPTION>
Industry Company Shares Value
-------- ------- ------ -----
<S> <C> <C>
Retail Stores, continued
The Gap, Inc. 2,608 $ 119,968
The Home Depot, Inc. 2,505 172,219
-----------
568,904
Telecommunications - 22.5%
Corsair Communications, Inc. * 3,900 31,688
QUALCOMM Inc. * 4,348 765,792
Tellabs, Inc. * 950 60,978
Vodafone Group PLC
sponsored ADR 2,325 115,088
-----------
973,546
Transportation - 1.2%
RailAmerica, Inc. * 6,200 53,088
-----------
Total Common Stock (Identified Cost $2,603,566) $ 4,003,459
Options - 0.1%
S&P 100 Index - 0.0%
January, 2000 Puts @ $650 * 6 488
January, 2000 Puts @ $680 * 10 1,500
-----------
1,988
S&P 500 Index - 0.1%
January, 2000 Puts @ $1,300 * 14 4,375
-----------
Total Options (Identified Cost $13,691) $ 6,363
Short-term Investments - 17.9%
Money Market Funds - 17.9%
Expedition Money Market Fund 131,614 131,614
Federated Money Market Prime
Obligations Fund 131,614 131,614
Federated Money Market Trust
Fund 123,396 123,396
Federated Prime Obligations
Fund 123,872 123,872
SEI Daily Income Trust Money
Market Fund 132,090 132,090
SEI Daily Income Trust Prime
Obligations Fund 131,614 131,614
-----------
774,200
===========
Total Short-term Investments (Identified Cost
$774,200) $ 774,200
===========
Total Investments - 110.4% $ 4,784,022
Other Assets and Liabilities, net - (10.4)% (452,306)
===========
Total Net Assets - 100.0% $ 4,331,716
===========
</TABLE>
* Non-income producing security as no dividends were paid during the period from
July 1, 1999 to December 31, 1999.
# The portfolio owns a call option on this security.
** The aggregate identified cost on a tax basis is $3,391,457. Gross unrealized
appreciation and depreciation were $1,532,069 and $139,504, respectively, or net
unrealized appreciation of $1,392,565.
See accompanying notes to financial statements.
<PAGE> 11
BRIDGEWAY FUND, INC. - SOCIAL RESPONSIBILITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (unaudited)
As of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments at value (cost - $3,391,457) $4,784,022
Cash 34,158
Receivable for securities sold 253,162
Receivable for interest 2,086
Receivable for dividends 688
Prepaid expenses 13,561
----------
Total assets 5,087,677
----------
LIABILITIES:
Payable for securities purchased 753,998
Payable for management fee 1,574
Accrued expenses 389
----------
Total liabilities 755,961
----------
NET ASSETS (123,142 SHARES OUTSTANDING) $4,331,716
==========
Net asset value, offering and redemption price per share ($4,331,716/123,142) $ 35.18
==========
NET ASSETS REPRESENT:
Paid-in capital $2,466,545
Net realized gain 472,606
Net unrealized appreciation of investments 1,392,565
----------
Net assets $4,331,716
==========
</TABLE>
<PAGE> 12
BRIDGEWAY FUND, INC. - SOCIAL RESPONSIBILITY PORTFOLIO
STATEMENT OF OPERATIONS (unaudited)
For the six months ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 6,858
Interest 4,538
-----------
Total income 11,396
EXPENSES:
Management fees 3,133
Accounting fees 5,532
Audit fees 2,513
Custody 1,207
Insurance 151
Legal 466
Registration fees 4,777
Directors' fees 198
-----------
Total expenses 17,977
-----------
NET INVESTMENT LOSS (6,581)
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 499,539
Net realized loss on options (26,933)
Net change in unrealized appreciation 584,993
-----------
Net realized and unrealized gain 1,057,599
-----------
NET INCREASE IN ASSETS RESULTING FROM OPERATIONS $ 1,051,018
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 13
BRIDGEWAY FUND, INC. - SOCIAL RESPONSIBILITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS (unaudited)
<TABLE>
<CAPTION>
Six months ended Year ended
INCREASE (DECREASE) IN NET ASSETS: December 31, 1999 June 30, 1999
OPERATIONS:
<S> <C> <C>
Net investment income (loss) $ (6,581) $ (11,918)
Net realized gain on investments 499,539 26,525
Net realized gain (loss) on options (26,933) 4,477
Net change in unrealized appreciation 584,993 443,829
----------- -----------
Net increase resulting from operations 1,051,018 462,913
----------- -----------
Distributions to shareholders:
From net investment income 0 0
From realized gains on investments (30,977) (12,184)
----------- -----------
Total distributions to shareholders (30,977) (12,184)
FUND SHARE TRANSACTIONS:
Proceeds from sale of shares 1,008,321 1,562,038
Reinvestment of dividends 29,535 11,534
Cost of shares redeemed (545,767) (677,938)
----------- -----------
Net increase from Fund share transactions 492,089 895,634
----------- -----------
Net increase in net assets 1,512,130 1,346,363
NET ASSETS:
Beginning of period 2,819,586 1,473,223
----------- -----------
End of period $ 4,331,716 $ 2,819,586
=========== ===========
Number of Fund shares:
Sold 36,246 65,562
Issued on dividends reinvested 969 592
Redeemed (20,663) (29,256)
----------- -----------
Net increase 16,552 36,898
Outstanding at beginning of period 106,590 69,692
----------- -----------
Outstanding at end of period 123,142 106,590
=========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE> 14
BRIDGEWAY FUND, INC. - SOCIAL RESPONSIBILITY PORTFOLIO
FINANCIAL HIGHLIGHTS (unaudited)
(for a share outstanding throughout the period)
<TABLE>
<CAPTION>
Six months ended Year ended Year ended Year ended
December 31, 1999 June 30, 1999 June 30, 1998 June 30, 1997
<S> <C> <C> <C> <C>
PER SHARE DATA
Net asset value,
beginning of period $ 26.45 $ 21.14 $ 16.21 $ 14.68
------------ ------------ ------------ ------------
Income (loss) from investment operations:
Net investment income (loss) (0.06) (0.14) 0.00 0.03
Net realized and
unrealized gain 9.06 5.62 5.57 2.31
------------ ------------ ------------ ------------
Total from investment operations 9.00 5.48 5.57 2.34
------------ ------------ ------------ ------------
Less distributions to shareholders:
Net investment income 0.00 0.00 (0.01) 0.00
Net realized gains (0.27) (0.17) (0.63) (0.81)
------------ ------------ ------------ ------------
Total distributions (0.27) (0.17) (0.64) (0.81)
------------ ------------ ------------ ------------
Net asset value, end of period $ 35.18 $ 26.45 $ 21.14 $ 16.21
============ ============ ============ ============
TOTAL RETURN [1] 34.2% 26.2% 35.3% 16.9%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period $ 4,331,716 $ 2,819,586 $ 1,473,223 $ 637,929
Ratios to average net assets: [2]
Expenses after waivers
and reimbursements 1.15% 1.50% 1.50% 1.50%
Expenses before waivers
and reimbursements 1.15% 2.13% 3.81% 5.81%
Net investment income (loss) after
waivers and reimbursements (0.42)% (0.60)% 0.02% 0.24%
Portfolio turnover rate [2] 86.4% 58.0% 37.8% 35.5%
<CAPTION>
Year ended 8/5/94* to
June 30, 1996 June 30, 1995
<S> <C> <C>
PER SHARE DATA
Net asset value,
beginning of period $ 11.61 $ 9.85
------------ ------------
Income (loss) from investment operations:
Net investment income (loss) (0.02) 0.07
Net realized and
unrealized gain 3.11 1.70
------------ ------------
Total from investment operations 3.09 1.77
------------ ------------
Less distributions to shareholders:
Net investment income (0.02) (0.01)
Net realized gains 0.00 0.00
------------ ------------
Total distributions (0.02) (0.01)
------------ ------------
Net asset value, end of period $ 14.68 $ 11.61
============ ============
TOTAL RETURN [1] 26.6% 18.9%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period $ 360,960 $ 64,421
Ratios to average net assets: [2]
Expenses after waivers
and reimbursements 1.48% 1.46%
Expenses before waivers
and reimbursements 16.80% 72.83%
Net investment income (loss) after
waivers and reimbursements (0.17)% 0.90%
Portfolio turnover rate [2] 83.8% 71.7%
</TABLE>
[1] Not annualized for periods less than a year.
[2] Annualized for periods less than a year.
* August 5, 1994 was commencement of operations.
See accompanying notes to financial statements.
<PAGE> 15
BRIDGEWAY FUND, INC.
SOCIAL RESPONSIBILITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. Organization:
Bridgeway Fund, Inc. (the "Fund") was organized as a Maryland corporation
on October 19, 1993, and is registered under the Investment Company Act
of 1940, as amended, as a no-load, diversified, open-end management
investment company.
The Fund is organized as a series fund and has six portfolios. The Fund
commenced operations as a regulated investment company on August 5, 1994
with the Ultra-Small Company Portfolio, the Aggressive Growth Portfolio
and the Social Responsibility Portfolio. On July 20, 1997, the Fund added
two portfolios: the Ultra-Small Index Portfolio and the Ultra-Large 35
Index Portfolio. On June 5, 1998, the Fund added the Micro-Cap Limited
Portfolio. The Fund is authorized to issue 1,000,000,000 shares.
Bridgeway Capital Management, Inc. is Adviser to the Fund.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.
Securities Valuation
Securities, including options, are valued at the closing price for
securities traded on a principal U.S. securities exchange and on NASDAQ.
Listed securities for which no sales are reported are valued at the
latest bid price in accordance with the pricing policy established by the
Fund's Board of Directors. When current bid prices are not available, the
most recently available quoted closing or bid price is used and adjusted
for changes in the index on the exchange on which that security trades,
also in accordance with the pricing policy established by the Fund's
Board of Directors.
Federal Income Taxes
It is the Fund's policy to comply with the requirements of Subchapter M
of the Internal Revenue Code applicable to regulated investment
companies, including the timely distribution of all its taxable income to
its shareholders. Therefore, no federal income tax provision has been
recorded.
Distributions to Shareholders
Distributions to shareholders are recorded when declared. The Fund
distributes net realized capital gains, if any, to its shareholders at
least annually, if not offset by capital loss carryovers. Distributions
of net investment income and realized short-term capital gains, if any,
are taxable as ordinary income to shareholders. The amount and character
of income and gains to be distributed are determined in accordance with
income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to the
differing treatment of net operating losses and tax allocations.
Use of Estimates in Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, as well as the reported amounts of income and
expenses during the reporting period. Actual results could differ from
those estimates.
<PAGE> 16
BRIDGEWAY FUND, INC.
SOCIAL RESPONSIBILITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS, Continued
2. Significant Accounting Policies, Continued:
Risks and Uncertainties
The Fund provides for various investment options including stocks and
call and put options. Such investments are exposed to various risks, such
as interest rate, market and credit. Due to the level of risk associated
with certain investments and the level of uncertainty related to changes
in the value of investments, it is at least reasonably possible that
changes in risks in the near term would materially affect shareholders'
account values and the amounts reported in the financial statements and
financial highlights. See the prospectus for additional risk information.
12b-1 Plan
The Fund acts as distributor of its shares pursuant to a 12b-1 plan
adopted by shareholders on October 15, 1996. The cost of distributing
shares of the Fund is borne by the Adviser at no cost to the Fund; thus,
there are no 12b-1 fees.
Other
Security transactions are accounted for as of the trade date, the date
the order to buy or sell is executed. Realized gains and losses are
computed on the identified cost basis. Dividend income is recorded on the
ex-dividend date, and interest income is recorded on the accrual basis.
Assets in the Social Responsibility Portfolio are very low, and may
remain so in the immediate future. Because commission cost per trade is
unacceptably high as a percentage of assets, the Adviser reimburses this
Portfolio for any commissions above one cent/share. The Adviser expects
to continue this practice until portfolio net assets reach at least $5
million.
3. Use of Derivative Instruments:
The Social Responsibility Portfolio may use derivative securities such as
the purchases and sales of futures and stock and index options to hedge
risk. (See Prospectus for additional information.) Buying calls increases
a Portfolio's exposure to the underlying security. Buying puts on a stock
market index tends to limit a Portfolio's exposure to a stock market
decline. All options purchased by the Fund were listed on exchanges and
considered liquid positions with readily available market quotes. A
summary of transactions in options by the Social Responsibility Portfolio
follows:
<TABLE>
<CAPTION>
Call Options Put Options
------------------------ ------------------------
Number Cost Number Cost
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Outstanding June 30, 1999 0 $ 0 2 $ 6,402
Purchased 0 0 70 39,731
Expired (0) (0) (25) (21,203)
Closed (0) (0) (17) (11,239)
---------- ---------- ---------- ----------
Outstanding December 31, 1999 0 $ 0 30 $ 13,691
========== ========== ========== ==========
Market value December 31, 1999 $ 0 $ 6,363
========== ==========
</TABLE>
<PAGE> 17
BRIDGEWAY FUND, INC.
SOCIAL RESPONSIBILITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS, Continued
4. Management Contract:
The Fund has entered into a management contract with Bridgeway Capital
Management, Inc. (the "Adviser"), a shareholder of the Fund. As
compensation for the advisory services rendered, facilities furnished,
and expenses borne by Bridgeway Capital Management, Inc., the Portfolio
pays Bridgeway Capital Management, Inc. a fee, computed and paid monthly
based on the average daily net assets of the portfolio for the month.
Such fee is based on the following annual rates: 0.90% of the first $250
million of each portfolio's average daily net assets, 0.875% of the next
$250 million and 0.85% of any excess over $500 million.
The fee is adjusted quarterly based upon performance. The performance
adjustment rate varies with the Fund's performance as compared to the
performance of the Standard & Poor's 500 Composite Stock Price Index with
dividends reinvested (hereinafter "Index" ) and ranges from -.7% to +.7%.
The performance rate adjustment is calculated at 4.67% of the difference
between the performance of the Fund and that of the Index over the
trailing five year period, except that there is no performance adjustment
if the difference between the Fund performance and the Index performance
is less than or equal to 2%.
5. Related Party Transactions:
One director of the Fund, John Montgomery, is an owner and director of
the Adviser. Under the Investment Company Act of 1940 definitions, he is
considered to be "affiliated" and "interested." Compensation of Mr.
Montgomery is borne by the Adviser rather than the Fund. The other
officers of the fund are employees of the Adviser and the portion of
their compensation attributable to fund accounting, shareholder
accounting and state registration services is paid by the Fund and is
included in the Accounting fees expense category of the financial
statements. All amounts paid for shareholder accounting are paid to the
Adviser.
6. Custodial Agreement:
The Fund has entered into a Custodial Agreement with Compass Bank. As
compensation for services rendered by the custodian, each portfolio pays
a fee, computed and paid quarterly based on the average month end total
assets of each portfolio for the quarter plus a fee per transaction.
7. Cost, Purchases and Sales of Investment Securities:
Investments have the same cost for tax and financial statement purposes.
Aggregate purchases and sales of investment securities, other than cash
equivalents were $1,507,543 and $1,272,829, respectively for the six
months ended December 31, 1999.
8. Federal Income Taxes:
During the six months ended December 31, 1999, the Fund paid a long-term
capital gain distribution of $0.267 per share to shareholders of record.
